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Katya Berezovsky works in the currency-trading unit of Sumara Workers Bank in Togliatti, Russia. Her...

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Finance

Katya Berezovsky works in the currency-trading unit of Sumara Workers Bank in Togliatti, Russia. Her latest speculative position is to profit from her expectation that the U.S dollar will rise significantly against the Japanese yen. The current sport rate is 120.00/$. She must choose between the following 90-day options on Japanese yen:

Option

Strike price

Premium

Put on yen

125/$

$0.00003/

Call on yen

125/$

$0.00046/

  1. Should Katya buy a put on yen or a call on yen?
  2. Using your answer to part (a), what is Katyas break-even price?
  3. Using your answer to part (a), what is Katyas gross profit and net profit (including the premium) if the spot rate at the end of the 90 days is 140/$?

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