Given the Following Information If Your Expectations Prove Correct at Maturity:
A)What Would Be

question 7

Essay

Given the following information:
$\begin{array}{ll}\text { Spot rate today: } & \$ 1.00 \text { euro } \\\text { Your expectation of the spot rate in four months: } & \$ 0.93 / \text { euro } \\\text { four month European call option: } & \\\quad \text { strike price } & \$ 0.99 \text { euro } \\\text { premium }& \$ 0.02 / \text { euro }\\\text { four month European put option: } \\\text { strike price } & \$ 0.99 \text { /euro }\\\text { premium } & \$ 0.03 / \text { euro } \\\end{array}$ If your expectations prove correct at maturity:
a)What would be your profit per euro from speculating in the options market? Show the strategy that would give the highest payoff given your expectation about the future exchange rate.
b)Graphically illustrate the loss and profit positions for the speculation in the options market.Label your graph clearly.

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Definitions:

Operations Management

Operations Management is the administration of business practices aimed at ensuring maximum efficiency within an organization, focusing on managing processes and converting materials and labor into goods and services as efficiently as possible.

Learning Percentage

The rate at which productivity improves as workers gain experience, often leading to reduced time and cost to complete tasks.

Operations Management

The field that deals with designing, overseeing, and controlling the process of production and redesigning business operations in the production of goods and services.

Learning Rate

A measure of how quickly a person or system improves performance or gains knowledge over time through experience or training.