Suppose That You Observe a European Option on a Currency

question 30

Multiple Choice

Suppose that you observe a European option on a currency with an exchange rate of S₀ and a foreign risk-free rate of . Which of the following inequalities correctly expresses the lower bound of the call?

• A) C_e(S₀,T,X) ≥ Max[0,S₀(1 +  )^-T + X(1 + r)^-T]
• B) C_e(S₀,T,X) ≥ Max[0,S₀ - X(1 +  )^-T]
• C) C_e(S₀,T,X) ≥ Max[0,S₀(1 +  )^-T - X]
• D) C_e(S₀,T,X) ≥ Max[0,S₀(1 +  )^-T - X(1 + r)^-T]
• E) none of the above

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