Suppose That You Observe a European Option on a Currency $\rho$

question 42

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 $\rho$ .Which of the following inequalities correctly expresses the lower bound of the call?

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

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