Mr. Wong is evaluating the execution of a “bear spread” on the British pound using put...

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Mr. Wong is evaluating the execution of a “bear spread” on theBritish pound using put options. He is given the followinginformation regarding the dollar-pound exchange rates. SeptemberPut option with an exercise price of $2 per £ is trading at apremium of $0.03 and another September put option with an exerciseprice of $2.10 is trading at a put premium of $0.06.
I. How would you determine your profit or loss on the bearspread?
II. What is the maximum amount the trader can make on the bearspread in the event of pound depreciation against the dollar?
III. What is the net cost of the bear spread?
IV. Determine the profit or loss on the bear spread if spotexchange rate (price at maturity) at maturity is a. $1.90 per poundb. $2.15 per pound c. $2.01 per pound
V. Determine the breakeven point in this bear spread.

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Mr. Wong is evaluating the execution of a “bear spread” on theBritish pound using put options. He is given the followinginformation regarding the dollar-pound exchange rates. SeptemberPut option with an exercise price of $2 per £ is trading at apremium of $0.03 and another September put option with an exerciseprice of $2.10 is trading at a put premium of $0.06.I. How would you determine your profit or loss on the bearspread?II. What is the maximum amount the trader can make on the bearspread in the event of pound depreciation against the dollar?III. What is the net cost of the bear spread?IV. Determine the profit or loss on the bear spread if spotexchange rate (price at maturity) at maturity is a. $1.90 per poundb. $2.15 per pound c. $2.01 per poundV. Determine the breakeven point in this bear spread.