Find the Value of a European Foreign Currency Call If

question 28

Multiple Choice

Find the value of a European foreign currency call if the spot rate is $5.25,the exercise price is $5.40,the domestic interest rate is 6.1 percent,the foreign interest rate is 5.5 percent,the call expires in one month,and the volatility is 0.32.(The interest rates are continuously compounded. )

• A)$0.167
• B)$0.15
• C)$0.140
• D)$0.131
• E)none of the above

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Definitions:

Adrenals

Glands located above the kidneys that produce hormones such as adrenaline and cortisol, which regulate stress response and other vital functions.

Hypothalamus

A region of the brain responsible for producing hormones that regulate body temperature, hunger, moods, and the release of hormones from other glands.

Cerebellum

A region of the brain that plays an important role in motor control, and it may also be involved in some cognitive functions such as attention and language as well as in regulating fear and pleasure responses.

Hippocampus

A brain structure that is a central processor of memory, especially memory for locations.