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Suppose you believe that the Swiss franc will appreciate to 85 /SF in three months. Suppose further that the strike price on the call and put options is 79 /SF. The premium on the call option is 0.85 /SF and on the put option is 0.90 /SF. You decide to buy an option to speculate in this market. Will you buy a call option or a put option? Suppose on the due date the spot rate is 79.8 /SF. Will you exercise your option, given that the spot transaction cost is 0.15 /SF? Explain why.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92425153

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