On January 1st, 2007, the following currency information is given:

• Spot exchange rate = $0.82/euro

• Dollar interest rate = 5.0% compounded continuously

• Euro interest rate = 2.5% compounded continuously

• Exchange rate volatility = 0.10

What is the price of 850 dollar-denominated euro call options with a strike exchange rate of $0.80/euro that expire on January 1st, 2008?

(A) Less than $10

(B) At least $10, but less than $20

(C) At least $20, but less than $30

(D) At least $30, but less than $40

(E) At least $40

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Stock Options Stock Underlying asset Time-t value of underlying Dividend yield Pricing assumption Meaning of o Volatility of the stock S(t) 8 S(t)'s are lognormally distributed Currency Options Foreign currency X(t) rf X(t)'s are lognormally distributed Volatility of the exchange rate