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Determine the speculator profit if the yen appreciates

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Reference no: EM132466337

Problem: A speculator is considering the purchase of two three-month Japanese yen call option with a strike price of 95 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 94 cents. The speculator believes the yen will appreciate to $1.00 per 100 yen over the next three months. The size of one option contract on yen is 1 million. As the speculator's assistant, you have been asked to compute the following:

Required:

Question 1: Determine the speculator's profit if the yen appreciates to $1.00/100 yen.

Question 2: Determine the speculator's profit if the yen only appreciates to the forward rate.

Question 3: Graph the call option cash flow schedule

Question 4: Determine the future spot price at which the speculator will only break even

Reference no: EM132466337

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