Which of the Following Could Cause the Volatility Smile Typically

question 16

Multiple Choice

Which of the following could cause the volatility smile typically seen for foreign currency options?

• A) Currencies are traded in different countries at different times of the day
• B) Currencies tend to have low volatilities
• C) The activities of central banks causes occasional jumps in the exchange rate
• D) Interest rates may be different in the two countries

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Big Bank

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A contractual document among partners that outlines the terms, conditions, and operational procedures of a partnership business.

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An unsecured loan provided by financial institutions, based on the borrower's credit history and ability to pay back, for personal use.