a) Assume the euro's spot price at the expiration date (market price) is ¥139/€ The investor's profit =  ¥/€     b) Assume the euro's spot price at the expiration date (market price) is ¥118/€ The investor's profit =  ¥/€     c) What is the maximum loss  Maximum loss =   ¥/€

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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An investor is expecting that the euro either will sharply increase or sharply decrease against the Japanese Yen. The investor purchases 2 options

 

1) a currency put option on the euro with a strike price (exchange rate) of ¥127/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥127/€.   the premium is ¥2/€

 

2) a currency call option on the euro with a strike price (exchange rate) of ¥127/€. When the investor purchases the contract, the spot rate of the euro is equivalent to ¥127/€.   the premium is ¥1/€

 

a) Assume the euro's spot price at the expiration date (market price) is ¥139/€

The investor's profit =  ¥/€

 

 

b) Assume the euro's spot price at the expiration date (market price) is ¥118/€

The investor's profit =  ¥/€

 

 

c) What is the maximum loss 

Maximum loss =   ¥/€

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