Anthony Burke, A currency fund manager believes that the Australian dollar will...
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Anthony Burke, A currency fund manager believes that the Australian dollar will appreciate versus the U.S. dollar over the next 120 days, and has decided to speculate in the options market. The currency spot rate is USD0.71/AUD. The manager may choose between the following options:
· Put on AUD with a strike price of USD0.7010/AUD and the premium of USD0.0005
· Call on AUD with a strike price of USD0.7010/AUD and the premium of USD0.0004
Should Anthony buy
the Call or Put on AUD?
What is the
break-even spot price on the option purchased in part (i)?
Using the answer
from part (i) what is Anthony’s payoff and net profit(including premium) if the
spot rate at the end of 120 days is indeed AUD0.7515/USD?
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