What exchange rate will you break-even

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Reference no: EM133906043

Question

The current spot exchange rate is $1.2415 = £1.00 and the six-month forward rate is $1.2505 = €1.00. Consider a six-month American call option on £500,000 with a strike price of $1.2345 = £1.00. If you pay an option premium of $6,000 to buy this call, at what exchange rate will you break-even?

Reference no: EM133906043

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