One year ago, you sold a put option on 100,000 pound sterlings with an expiration...
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One year ago, you sold a put option on 100,000 pound sterlings with an expiration date of one year. You received a premium on the put option of $.05 per unit. The exercise price was $1.35. Assume that one year ago, the spot rate of the pound sterling was $1.40, the one-year forward rate exhibited a discount of 2%, and the one-year futures price was the same as the one-year forward rate. From one year ago to today, the pound sterling depreciated against the dollar by 7 percent. Today the put option will be exercised (if it is feasible for the buyer to do so). a) (7.5 points) Determine the total dollar amount of your profit or loss from your position in the put option. b) (7.5 points) Now assume that instead of taking a position in the put option one year ago, you sold a futures contract on 100,000 pound sterlings with a settlement date of one year. Determine the total dollar amount of your profit or loss.
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