Assume That a Speculator Purchases a Put Option on British

question 102

Multiple Choice

Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.05 per unit. A pound option represents 31,250 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. The highest net profit possible for the speculator based on the information above is:

• A)$1,562.50.
• B)-$1,562.50.
• C)-$1,250.00.
• D)-$625.00.

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Definitions:

Constrained Resource

A resource in limited supply that restricts a company's ability to meet production demands or goals.

Profitability Order

This term does not refer to a specific accounting or financial metric but generally could mean prioritizing products, services, or projects based on their profitability.

Current Profitability

The measure of a company's current profit levels, often assessed through metrics like net income or operating profit.

Variable Costs

Expenses that vary directly with the amount of output or sales.