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Calculate the current premium

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Reference no: EM133058573

The table below shows the premiums for several currency options (all the options are maturing in 9 months):

 

Option strike price  GBP 0.55 for 1 SGD

Option strike price GBP 0.65 for 1 SGD

Call on SGD

GBP 0.0641

GBP 0.0203

Put on SGD

GBP 0.0207

GBP 0.0746

The spot currency rate on the day when all the above options are priced is GBP 0.58 for 1 SGD.

(a) Calculate the current premium for a 9-month maturity call option on GBP with strike price of GBP 0.55 for 1 SGD. Show your working.

(b) Suppose that you hold the call option on GBP specified in part (i) above until maturity. On maturity, the spot currency rate is GBP 0.52 for 1 SGD. What is your terminal payoff?

Reference no: EM133058573

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