The Current Spot Exchange Rate Is $1

question 2

Multiple Choice

The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00.Consider a three-month American call option on €62,500 with a strike price of $1.50 = €1.00.If you pay an option premium of $5,000 to buy this call,at what exchange rate will you break-even?

• A)$1.58 = €1.00
• B)$1.62 = €1.00
• C)$1.50 = €1.00
• D)$1.68 = €1.00

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Definitions:

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