The Lower Bound of a Put Option Premium Is the Greater

question 41

True/False

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

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Definitions:

Premium

An amount paid in addition to the standard or nominal amount, often for insurance, superior products, or securities above their face value.

Spot Rate

The current market price at which a particular asset, such as foreign currency, can be bought or sold for immediate delivery.

Direct Quote

A currency exchange rate expressed in terms of the home currency per unit of the abroad currency.

Euros

The official currency used by the countries of the Eurozone.