The Lower Bound of the Call Option Premium Is the Greater

question 71

True/False

The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price; the upper bound of a currency call option is the spot rate.

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Definitions:

Time-to-Maturity

The remaining period until a financial instrument, such as a bond or loan, reaches its due date and must be repaid in full.

Put Option

A financial contract that gives the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a specified price within a specified time.

Sell Calls

An investment strategy involving the selling of call options, where the seller grants the buyer the right to purchase an underlying asset at a specified price within a certain period.

Buy Warrants

Options that give the holder the right to purchase a company's stock at a specified price before a certain date.