Question:Gretchen Van Damme is considering buying call option on Swiss
francs on the International Monetary Market...
Question
Gretchen Van Damme is considering buying call option on Swiss
francs on the International Monetary Market...
Gretchen Van Damme is considering buying call option on Swiss
francs on the International Monetary Market of the Chicago
Mercantile Exchange with a March expiration date and a strike price
of $0.77/SF. The current spot rate of exchange is $0.77/SF.
Gretchen believes that the spot rate in March will be between
$0.74/SF and $0.81/SF, with a most likely value of $0.77/SF.
a. Calculate Gretchen's gain or loss at closing spot rate of
$0.74/SF, $0.77/SF, and $0.81/SF.
b. Diagram the value of Gretchen's Swiss franc call option at
expiration.
c. Suppose the price of a call option on Swiss francs is
$0.02/SF, diagram the profit or loss on Gretchen's Swiss francs
call option at expiration as a function of the underlying S$/SF
exchange rate