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What does this mean if you are a potential seller

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Reference no: EM132460100

Question 1: You read that European call options on pounds sterling having a strike of £/$: 1.31 and a maturity of next March are now quoted at 5.88c. What does this mean if you are a potential seller?

Question 2: What would happen if the exchange rate at maturity is 1.28 (Direct Quote). What would it cost you.

Question 3: You have the same information as above, except that the price is for an American option and the market price is 1.41 at exercise. What is different?

Question 4: Why would anyone write an option, knowing that the gain from receiving the option premium is fixed but the loss if the underlying price goes in the wrong direction can be extremely large?

Reference no: EM132460100

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