What is the maximum profit that you can make

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Reference no: EM131965160

Question: Currently you have a short position on €. The current rate is $1.1/€. You are expecting the $/€ exchange rate to go down, but still worried about a rate increase. You want to limit your loss if the rate goes up. What should you do? You can buy or sell a call or a put on €.

These are the quotations for the call and put options:

Call on €: exercise price = $1.1/€, premium=$0.03

Put on €: exercise price = $1.1/€, premium=$0.06

Please draw the graph for your combined position. What is the maximum profit that you can make with this combined position? What is the maximum possible loss? What is the breakeven point?

Reference no: EM131965160

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