Which of the Following Is True of Call and Put

question 18

Multiple Choice

Which of the following is true of call and put currency options?

• A)If the domestic interest rate is greater than the foreign interest rate,the American option to buy domestic currency in exchange for foreign currency should sell for a price less than that of the European option to do the same.
• B)If the domestic interest rate is greater than the foreign interest rate,the American option to buy domestic currency in exchange for foreign currency should sell for a price greater than that of the European option to do the same.
• C)If the domestic interest rate is greater than the foreign interest rate,the American option to buy domestic currency in exchange for foreign currency should sell for the same price as the European option to do the same.
• D)If the domestic interest rate is same as the foreign interest rate,the American option to buy domestic currency in exchange for foreign currency should sell for the same price as the European option to do the same.

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Definitions:

Compute

To calculate or process data using a computer or mathematical methods, leading to a result or solution.

Amortize

The process of gradually paying off debt through scheduled, systematic repayments of principal and interest.

Compounded Monthly

The process of calculating interest on both the initial principal and the accumulated interest from previous periods, with the compounding occurring every month.

Monthly Payments

Monthly payments refer to amounts paid every month over a set period of time to repay a debt or subscription, often used in loans or service agreements.