Betsy is a currency trader for Scotia Bank in Switzerland. Anne believes that the Swiss Franc (CHF) will appreciate versus the U.S. dollar over the coming 90 days. The current spot rate is CHF1.1215/$. She may choose between the following options on the Swiss Franc:

Option		Strike Price		Premium
Put on CHF		CHF1.1186/$		$0.00004/CHF
Call on CHF		CHF1.1186/$		$0.00059/CHF

a. Recommend whether she should buy a put on Swiss Franc or a call on Swiss Franc. Justify your answer.

b. Estimate the breakeven price on the option purchased in part (a).

c. Using your answer from part (a), estimate gross profit and net profit if the spot rate at the end of 90 days is indeed CHF1.2158/$.

d. Using your answer from part (a), re-estimate the gross profit and net profit if the spot rate at the end of 90 days is CHF1.1120/$.

Answer rating: 100% (QA)

a The view is that Swiss franc will appreciate henc... View the full answer