Question

Citicorp buys a call option on Euro (contract size is Euro 2,000,000) at a premium of $0.02 per Euro. If the exercise price is $0.59 and the spot price of the mark at date of expiration is $0.60, what is Citicorp's profit (loss) on the call option

Answer 1

Answer: $20,000

Explanation:

To calculate Citicorp's profit or loss we can use the following formula,

The Citigroup's profit is computed as shown below:

= Exercise Price - Spot Price + Premium received

= $ 0.59 - $ 0.60+ $ 0.02

= $ 0.01 per euro is Citicorp's profit.

Total profit will therefore be:

= $ 0.01 x 2,000,000

= $ 20,000

$20,000 is Citicorp's profit on the call option.

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