A European At-The-Money Call Option on a Currency Has Four

question 16

Multiple Choice

A European at-the-money call option on a currency has four years until maturity. The exchange rate volatility is 10%, the domestic risk-free rate is 2% and the foreign risk-free rate is 5%. The current exchange rate is 1.2000. What is the value of the option?

• A) 1.11N(0.7)-0.98N(0.5)
• B) 1.11N(-0.7)-0.98N(-0.5)
• C) 1.11N(0.7)-0.98N(0.4)
• D) 1.11N(-0.06)-0.98N(-0.10)