Question

# Suppose Company A bought a call option for \$0.03 per euro, with a spot rate of...

Suppose Company A bought a call option for \$0.03 per euro, with a spot rate of 1euro to \$1.0872, the strike price 30-days forward is 1 euro to the US\$ is1.0915. If the spot rate 30 days from now is \$1.0920, determine the profit/loss on the call option for \$1.0910, \$1.0915, \$1.0918 and \$1.0920. Contract size is 62,500 euros. (10 points) (Ch 8)

Please provide step by step solution when providing the explanation

#### Homework Answers

Answer #1

Profit of call option (per euro) = Max[S-X, 0] - P

where :

S = spot rate at expiry,

X = strike price

P = premium paid

Profit of call option (on contract) = Profit of call option (per euro) * number of euros per contract

The number of euros per contract is 62,500

The profit/loss is calculated as below :

The formulas are below :

The formulas are above

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