Find the Lower Bound of a European Foreign Currency Put

question 40

Multiple Choice

Find the lower bound of a European foreign currency put if the spot rate is $3.50,the domestic interest rate is 8 percent,the foreign interest rate is 7 percent,the option expires in six months,and the exercise price is $3.75.(The interest rates are continuously compounded. )

• A)zero
• B)$0.250
• C)$0.366
• D)$0.108
• E)none of the above

---

Definitions:

Sheep

Domesticated ruminant animals, typically kept as livestock for their wool, meat, and milk.

Classical Conditioning

A learning process that occurs when two stimuli are repeatedly paired; a response that is at first elicited by the second stimulus is eventually elicited by the first stimulus alone.

Responding Increases

The enhancement in the frequency or intensity of a behavior or reaction due to stimulation or reinforcement.

Pavlov's Experiment

A classical conditioning experiment by Ivan Pavlov demonstrating that dogs could be trained to salivate in response to a neutral stimulus when associated with food.