Following information about the three-month put option contract on British pound (£)

Finance Sep 08, 2020

Following information about the three-month put option contract on British pound (£). Edward, who is a speculator, had purchased this put option and decided to exercise the option shortly before the expiration date, when the spot rate of the pound was A$1.3127/£. Using this information, calculate the net profit/loss from Edward’s purchase. Put option premium on British pound (£) = A$0.0976 per unit Strike price = A$1.61 One option contract represents £10,000 A. - A$ 1865 B. A$ 1965 C. - A$ 1895 D. A$ 1997 E. None of the above.

Expert Solution

The net profit / loss is computed as shown below:

= Strike price - Spot rate - Premium paid

= (A$1.61 - A$1.3127 - A$0.0976) x 10,000

= A$0.1997 x 10,000

= A$ 1,997

So, the correct answer is option D.

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote