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

question 22

Essay

Given the following information:
$\begin{array}{ll}\text { Spot rate today: } & \$ 1.50/ \text { SF } \\\text { Your expectation of the spot rate in three months: } & \$1.55 / \text { SF } \\\text { four month European call option: } & \\\quad \text { strike price } & \$ 1.51/ \text { SF } \\\text { premium }& \$ 0.02 / \text { SF }\\\text { four month European put option: } \\\text { strike price } & \$1.51/ \text { SF }\\\text { premium } & \$ 0.03 / \text { SF } \\\end{array}$ If your expectations prove correct at maturity:
a)What would be your profit per Swiss franc 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:

Frequency

The number of times a particular value or category occurs in a data set, often displayed in tables or charts.

Skewed

A description of a distribution of data or scores that shows asymmetry, meaning the bulk of the data points are lopsided toward one side of the scale.

Cumulative Percent

A measure that shows the percentage of data points less than or equal to a particular value, accumulated over a distribution or data set.

Frequency Distribution

A frequency distribution is a summary of how often different values or ranges of values occur within a set of data.