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:

First-borns

The eldest child in a family, often attributed with characteristics such as leadership and responsibility due to their birth order.

Unanswered Questions

Issues or queries that have not yet been addressed or resolved.

Inconsistent

Lacking in uniformity; displaying variations that often contradict each other.

Unsystematic

Lacking method or system in organization or in the execution of something, leading to unpredictability or disorder.