Final answer:
The net outcome on a long European put option with the given parameters is a loss, not a profit, because the premium paid is higher than the gain from exercising the option. If forecasters expect the EURUSD spot price to appreciate, put option premiums will likely decrease due to the reduced probability of profitable exercise.
Step-by-step explanation:
The profit on a long European put option on the EURUSD when the option premium is 0.03, the strike is 1.2913, and the spot price is 1.2811, can be calculated as follows: If the option is exercised, the profit is the difference between the strike price and the spot price, which is 1.2913 - 1.2811 = 0.0102 per euro. Given that the option premium is 0.03, the net profit per euro would be 0.0102 - 0.03 = -0.0198. This indicates a loss, not a profit since the premium paid is higher than the gain from exercising the option.
Answering part b), if forecasters have determined that the EURUSD spot price will appreciate in the next week, the put option premiums on those EURUSD contracts will likely decrease. This is because an increase in the spot price of EURUSD makes it less likely that the put option will be exercised profitably. Therefore, the demand for put options would decrease, leading to lower premiums.