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

question 8

Multiple Choice

A European at-the-money put 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)

---

Definitions:

Organic Product

A compound resulting from an organic reaction, often specifying a natural or environmentally friendly substance.

Synthesis

The process of combining components or elements to form a coherent entity, often referring to chemical synthesis.

Reactants

Substances initially present in a chemical reaction that are consumed to form products during the reaction.

Ethyl Magnesium Chloride

A Grignard reagent represented as CH3CH2MgCl, utilized in organic synthesis to form carbon-carbon bonds.