Assume That the German Mark Spot Rate Is $0

question 2

Multiple Choice

Assume that the German mark spot rate is $0.5891 and the six-month forward rate is $0.5971. Also, assume that the six-month Eurodollar rate is 6%.
-You paid $0.1 for a one-year European call option for £1 with the strike price of $1.7/£.At which exchange rates on the maturity date will you exercise your option?

• A) Less than $1.7/£
• B) Less than $1.8/£
• C) More than $1.7/£
• D) More than $1.8/£

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Definitions:

Straight-Line Method

An accounting method of depreciation where the value of a fixed asset is reduced uniformly over its useful life.

Depreciable Amount

The cost of an asset, or other amount substituted for cost, less its residual value.

Residual Value

The estimated amount that an asset will realize upon its disposal at the end of its useful life after deducting expected costs of disposal.

Annual Depreciation

The portion of the cost of a fixed asset that is expensed each year over its useful life as a way to allocate the cost over time.