Frank Is an Option Speculator

question 28

Multiple Choice

Frank is an option speculator. He anticipates the Danish kroner to appreciate from its current level of £0.09 to £0.10. Currently, kroner call options are available with an exercise price of £0.08 and a premium of £0.03. Should Frank attempt to buy this option? If the future spot rate of the Danish kroner is indeed £0.10, what is his profit or loss per unit?

• A) No; -£0.01
• B) Yes; £0.01
• C) Yes; -£0.01
• D) Yes; £0.03

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Definitions:

Impacted

Describes a condition where a substance is tightly packed or an object is wedged firmly in place, making removal difficult.

Femur

The thigh bone of the leg.

Inadequate Calcium

Insufficient levels of calcium in the body, which can lead to weakened bones and other health issues.

Kyphosis

A convex curvature of the spine; humpback.