Draw three graphs horizontal axis is spot rate

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Reference no: EM132011888

Your company is expected to receive €5,000,000 in six months and you need to agree with your colleagues if you should buy a put option.

I've been asked to draw three (simple) graphs (horizontal axis is spot rate, veritcal axis is money) for International Finance related to options:

Graph 1) If you do not have a put option and receive the €5,000,000 and convert it at the current spot rate.

Graph 2) If you do have a put option with a premium of €100,000 and a strike price of $1.15/€. (You can ignore the issue of interest rates)

Graph 3) A graph showing the difference between the previous two graphs (essentially indicating the advantage of having bought the put option).

Make sure to title and label each graph and indicate any important coordinates, i.e. any x or y intercepts and any kinks in the line.

Your spot rates should run from $1.00/€ to $1.20/€ on the horizontal axis (So 1.01, 1.02, 1.03...... 1.20)

Reference no: EM132011888

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