Compared to a Situation in Which There Is No Change

question 147

Multiple Choice

Compared to a situation in which there is no change in the value of the dollar relative to the peso,in which of the following situations would you be worse off?

• A)you borrow 10,000 pesos,you earn income in dollars,the dollar appreciates against the peso,you must pay back the loan in pesos
• B)you borrow $10,000,you earn income in pesos,the dollar depreciates against the peso,you must pay back the loan in dollars
• C)you borrow $10,000,you earn income in pesos,the dollar appreciates against the peso,you must pay back the loan in dollars
• D)you borrow 10,000 pesos,you earn income in pesos,the dollar depreciates against the peso,you must pay back the loan in pesos

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Definitions:

American Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy a specified quantity of an asset at a predetermined price within a specified time period until expiration.

Underlying Asset

An asset or security on which a derivative instrument, such as a futures or options contract, is based.

Value Decrease

Occurs when the value of an asset or investment declines over time due to market conditions, wear and tear, or other factors.

Black-Scholes

A mathematical model used for pricing European-style options, taking into account factors like volatility, underlying asset price, strike price, and time to expiration.