A Volatility Smile Such as That Seen for Foreign Currency

question 4

Multiple Choice

A volatility smile such as that seen for foreign currency options can be caused by: choose two)

• A) The fact that currencies are traded in different countries at different times of the day
• B) The fact that volatility is not constant
• C) The fact that the activities of central banks cause occasional jumps in the exchange rate
• D) The fact that interest rates may be different in the two countries

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Definitions:

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The period or activities that occur before a consumer decides to buy a product or service.

Cognitive Biases

Systematic patterns of deviation from norm or rationality in judgment, whereby inferences about other people and situations may be drawn in an illogical fashion.

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