Difference between short synthetic and short currency

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Reference no: EM131354231

1. Why would anyone do a long synthetic or a short synthetic? What is the difference between a long synthetic and a long currency? What is the difference between a short synthetic and a short currency?

2. You bought a call option on € with an exercise price of $2 and you paid $0.08/€ as premium. At the same time, you sold a put on € with an exercise price of $2 and you received $0.10/€ as premium.

a. Please draw the combined profit graph. Show all appropriate numbers.

b. What is the name of this strategy?

c. What is the break-even point?

d. What is your profit/loss if S_T = $1.97/€?

e. What is your profit/loss if S_T = $1.99/€?

f. What is your profit/loss if S_T = $2.10/€?

Reference no: EM131354231

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