Exercise 11.5.2 In a conditional forward contract, the premium p is paid at expiration and only if

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Exercise 11.5.2 In a conditional forward contract, the premium p is paid at expiration and only if the exchange rate is below a specified level X. The payoff at expiration is thus S− X− p if the exchange rate S exceeds X,

−p if S ≤ X.

It guarantees that the effective future exchange rate will be, at most, X+ p. Replicate this contract with standard options.

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