Assume That a British Pound Put Option Has a Premium

question 18

Multiple Choice

Assume that a British pound put option has a premium of $.03 per unit and an exercise price of $1.60. The present spot rate is $1.61. The expected future spot rate on the expiration date is $1.52. The option will be exercised on this date, if at all. What is the expected per unit net gain (or loss) resulting from purchasing the put option? ​

• A)$.01 loss
• B)$.09 loss
• C)$.09 gain
• D)$.05 gain

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Definitions:

Recency Effect

A cognitive bias that places more importance on the most recent information received over earlier data.

Long List

A comprehensive enumeration or cataloging of items, which can be used for reference, comparison, or decision-making.

Other Party's Outlook

The perspective or viewpoint of the opposing side in a negotiation or dialogue.

Designing Solutions

The process of creating answers or methods to solve specific problems or meet desired needs.