What Should the Continuous Dividend Yield Be Replaced by When

question 4

Multiple Choice

What should the continuous dividend yield be replaced by when options on an exchange rate are valued using the formula for an option on a stock paying a continuous dividend yield?

• A) The domestic risk-free rate
• B) The foreign risk-free rate
• C) The foreign risk-free rate minus the domestic risk-free rate
• D) None of the above

---

Definitions:

Liberal

A political and social philosophy that promotes individual freedoms, democracy, and a mixed economy with both government and private sector influences.

Moderate

Describes an intermediate level of intensity, amount, or degree; neither too much nor too little.

Conservative

A political and social philosophy that promotes retaining traditional social institutions.

Political Science

The study of governments, public policies, political processes, systems, and political behavior.