What Is the Intrinsic Value of a Foreign Currency Option

question 6

Multiple Choice

What is the intrinsic value of a foreign currency option?

• A)the difference between the spot rate and the strike price
• B)the gain on the option if it was exercised immediately
• C)the chance that a currency will rise over time to make the option in the money
• D)the difference between a call option and a put option

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Definitions:

Tax Revenues

The income that is collected by governments through the imposition of various taxes, which is used to fund public services and policies.

Deadweight Losses

The loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved, leading to a net loss in societal welfare.

Incentives

Motivational factors or mechanisms that encourage individuals or groups to behave in a certain way or to take specific actions.

Lump-Sum Taxes

Taxes that are the same amount for everyone, regardless of the taxpayer’s income level or ability to pay.