Answer Happy

A US-based speculator is considering the purchase of a
three-month Japanese yen put option on ¥1,000,000, with a strike
price of 97 cents per ¥100. The option is American-style, with a
premium of 2 cents per ¥100. The current spot exchange rate is 98
cents per ¥100 and the three-month forward exchange rate is 99
cents per ¥100.
(a) Suppose the speculator decides to purchase this contract.
Does this decision indicate that the speculator holds a bullish or
bearish view on the Japanese yen against the US dollar?
(b) What are the current intrinsic value and time value of the
option contract?
(c) If the speculator holds the contract to expiration, determine
his total profit/loss if the
spot price of the yen becomes 94 cents per ¥100 in three
months.
(d) If the speculator holds the contract to expiration, graph
the put option’s cash flow (i.e. profit/loss) schedule in US cents
per ¥100 purchased. Label on the graph the premium, strike price,
and the break-even point of the option. Please also label the axes
of the graph.