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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Definitions:

Nonemployee Agent

An individual or entity that acts on behalf of another person or entity in a specific role or capacity but is not considered an employee for legal and tax purposes.

Fiduciary Duty

An obligation to act in the best interest of another party. For instance, a corporation's board member has a fiduciary duty to the shareholders.

Bribe

Offering, giving, receiving, or soliciting something of value for the purpose of influencing the actions of an official or other person in charge of a public or legal duty.

Best Interests

A standard considering the wellbeing and benefits of an individual, especially in legal and financial decisions affecting that person.