A European put option contract with an exercise price of $1.50/£ and a contract size of £31,250 is currently trading at a premium of $0.15/£. a. If you buy this contract, what spot exchange rate at maturity will maximize your profit? What is the amount of the maximum possible profit from one contract? b. If you buy this contract, what is your maximum possible loss from one contract? c. If you sell this contract, what is your maximum possible profit on this contract? d. If you sell this contract, what is your maximum possible loss from one contract? At what future spot exchange rate will you maximize your loss? e. At what future spot exchange rate, will either the buyer or seller of this contract break even? e. At what future spot exchange rate, will either the buyer or seller of this contract break even?
