1.<\/p>\n

Remember that the holder of the call option, whoever Mike Suerth has sold the option to,
\nwill exercise it if S – X \u2265 0, otherwise she will let the option expire. In this case, S – X = $0.82 –
\n$0.76 = $0.06 \u2265 0; so the holder of the option will exercise it. In that case, the option seller’s – Mike
\nSuerth’s – net profit per unit of Canadian dollar is calculated as follows:
\nNet profit per C$ = Selling price of currency – Buying price of currency + Premium on the option
\n= $0.76 – $0.82 + $0.01 = -$0.05
\nSince each option contract contains 50,000 units of Canadian dollars,
\nNet profit per option = 50,000 units \u00d7 (-$.05) = -$2,500<\/p>\n

3.<\/p>\n

Remember that the holder of a put option will exercise it if S – X \u2264 0, otherwise she will
\nlet the option expire. In this case, S – X = $1.59 – $1.80 = – $0.21 \u2264 0; so the holder of the option will
\nexercise it. Her net profit per unit of British pound is calculated as follows:
\nNet profit per \u20a4 = Selling price of currency – Buying price of currency – Premium on the option
\n= $1.80 – $1.59 – $0.04 = $0.17
\nSince each option contract contains 31,250 units of British pound,
\nNet profit per option = 31,250 units \u00d7 ($.17) = $5,312.50<\/p>\n

4.<\/p>\n

Remember that the holder of the put option, whoever Bulldog, Inc. has sold the option to,
\nwill exercise it if S – X \u2264 0, and the option seller’s – Bulldog, Inc.’s- net profit per unit of currency
\nwill be calculated as follows:
\nNet profit per unit = Selling price of currency – Buying price of currency + Premium on the option.
\nOtherwise, that is if S – X > 0, the holder of the put option will let the option expire and the seller,
\nBulldog, Inc., will walk away with the premium that it had collected at the time of option’s sale.<\/p>\n

5.<\/p>\n

Remember that the holder of a call option will exercise it if S – X \u2265 0, otherwise he will
\nlet the option expire. In this case, S – X = $1.46 – $1.45 = $0.01 \u2265 0; so the holder of the option will
\nexercise it. His net profit per unit of British pound is calculated as follows:
\nNet profit per \u20a4 = Selling price of currency – Buying price of currency – Premium on the option
\n= $1.46 – $1.45 – $0.02 = -$0.01
\nSince each option contract contains 31,250 units of British pound,
\nNet profit per option = 31,250 units \u00d7 (-$.01) = -$312.50<\/p>\n

8.<\/p>\n

Possible Spot Rate Net Profit (Loss) per Unit of Canadian Dollar to Auburn Corporation on Expiration Dateif Spot Rate Occurs $.76\u00a0 : <\/strong>0.08<\/p>\n

$.79 :<\/strong> 0.05 .<\/p>\n

$.84: <\/strong>0<\/p>\n

$.87:<\/strong> -0.02<\/p>\n

$.89:<\/strong> -0.02<\/p>\n

$.91: <\/strong>-0.02<\/p>\n

 <\/p>\n

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