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A put option on Japanese yen is written with a strike price of ¥95.00/$. Which spot exchange rate will maximize your profit if you choose to exercise the option?

a. ¥85.00/$

b. ¥90.00/$

c. ¥100.00/$

d. ¥115.00/$

And why?

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Jamar Ferry
Jamar FerryLv2
28 Sep 2019

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A put option on yen is written with a strike price of ¥105.00/$. How much profit/loss will you make if you choose to exercise the option at ¥107.00/$?

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What will be your maximum gain and maximum loss in dollars, if you short a euro call option against dollar with strike price of $1.35/euro and at a premium of $0.07?

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What will be your maximum gain and maximum loss, if you short a Japanese Yen put option with strike price of ¥103.00/$ and a cost of ¥10?

1. Answer the following questions regarding options: (1) A put option on yen is written with a strike price of ¥105.00/$. How much profit/loss will you make if you choose to exercise the option at ¥107.00/$? (2) A call option on euros is written with a strike price of $1.30/euro. How much profit/loss will you make if you choose to exercise the option at $1.45/euro? (3) A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02. What is the break-even price for the option? (4) Your U.S firm has an accounts payable denominated in UK pounds due in 6 months. What you should do by using currency options to protect yourself against unexpected changes in the dollar/pound exchange rate? (5) What will be your maximum gain and maximum loss in dollars, if you short a euro call option against dollar with strike price of $1.35/euro and at a premium of $0.07? (6) What will be your maximum gain and maximum loss, if you long a UK pounds put option with strike price of $1.80/£ and a cost of $0.7? (7) What will be your maximum gain and maximum loss, if you short a Japanese Yen put option with strike price of ¥103.00/$ and a cost of ¥10?

The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00. Consider a three-month American put option on €62,500 with a strike price of $1.50 = €1.00. If you pay an option premium of $5,000 to buy this put, at what exchange rate will you break-even?

A. $1.58 = €1.00

B. $1.62 = €1.00

C. $1.50 = €1.00

D. $1.68 = €1.00

E. $1.42 = €1.00

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