What is the payoff of a collar involving a long call

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Kelvin just purchased £15.2 million goods from a British exporter on credit due 90 days from today. The spot exchange rate is $1.21/£. The 90-day interest rates in the U.S. and the UK is 1 and 1.5 percent respectively. The 90-day forward rate on pound is $1.2090/£. A 3-month call at strike price of $1.20/£ can be purchased at a premium of $0.016. A 3-month put option at strike price of $1.20/£ can be purchased at a premium of $0.018 and can be sold at a premium of $.017. Assuming in 90 days the exchange rate will be either $1.20/£ or $1.25/£. What is the payoff of a collar involving a long call and short put at the same strike price of $1.20/£?

Reference no: EM132035728

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