Determine the speculator''s profit if euro depreciates

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Reference no: EM133377041

Question: A speculator is considering the purchase of five 3-month euro put options from PHLX with a strike price of $1.10/€. The premium is 1.2 cents per €. The spot price is $1.15/€ and the 3-month forward rate is $1.13/€. The speculator believes the € will depreciate to $1.05/€ over the next three months. As the speculator's assistant, you have been asked to prepare the following:

Graph the put option cash flow schedule. Mark clearly where will be the option's break-even point.
Determine the speculator's profit if euro depreciates to $1.05/€ as expected.
Determine the speculator's profit if euro depreciates only to the forward rate.

Reference no: EM133377041

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