​The Shorter the Time to the Expiration Date for a Currency

question 149

Multiple Choice

​The shorter the time to the expiration date for a currency, the ____ will be the premium of a call option, and the ____ will be the premium of a put option, other things being equal.

• A) ​greater; greater
• B) ​greater; lower
• C) ​lower; lower
• D) ​lower; greater

---

Definitions:

Risky Years

A term not widely recognized in finance; possibly refers to periods of high financial uncertainty or volatility.

Certainty Equivalent Approach

A method of evaluating investments by adjusting future cash flows to reflect the risk, converting them into certain cash flows in present value terms.

Overlay Approach

A strategy used in investing that manages risk by using various hedging techniques to achieve a desired exposure.

Certainty Equivalent Factor

A concept used in finance to adjust the future cash flows of an investment to account for risk, essentially converting them into a guaranteed cash flow that an investor would accept in place of holding a risky asset.