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5 July, 10:57

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

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  1. 5 July, 11:42
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    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.

    If you need any clarification do react or comment.
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