The Lower Bound of the Call Option Premium Is the Greater

question 89

True/False

The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price; the upper bound of a currency call option is the spot rate.

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Definitions:

Utility Function

A mathematical representation that ranks individuals' or consumers' preferences for a set of goods or services, indicating satisfaction levels.

Reservation Price

The maximum or minimum price a buyer is willing to accept or pay for a good or service.

BMWs

are high-performance luxury vehicles manufactured by the German company Bayerische Motoren Werke AG.

Utility Function

A mathematical representation of how a set of goods or outcomes provides satisfaction or utility to an individual.