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What would be the option payoff and profit

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Reference no: EM132489188

Consider a European call option on €62,500 with an exercise price of $1.50/€. You pay an option premium of $0.10/€ for the call option today.

Question a. If the $-€ spot exchange rate is $1.62/€ on the contract expiration date, would you exercise the call option (buy € at the exercise price at expiration)? What would be the option payoff and profit?

Question b. If the $-€ spot exchange rate is $1.45/€ on the contract expiration date, would you exercise the call option? What would be the option payoff and profit?

Question c. At what $-€ spot exchange rate at expiration would you break-even (profit=0)?

Question d. Draw a profit profile of buying the call option.

Reference no: EM132489188

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