As head of currency trading at Ball Bearings Bank in London, you need to price a series of options of various maturity on Danish kroner. The current spot rate is .

Continuously compounded risk-free 3-month interest rates in the United Kingdom and in Denmark are percent and percent, respectively. Instantaneous volatility on the pound/krone spot rate is percent per three months. The international parity conditions hold.

a. Assume an exercise price of . Complete the following table based on the international parity conditions and the currency option pricing formulas in Equations (6A.4) and (6A.6).

Maturities T 1 month 3 months 6 months 1 year Forward rate Call option value Put option value

b. Repeat part

(a) using the currency option pricing formula in Equations (6A.3) and (6A.5).

c. Draw a payoff profile that includes all four calls on the same graph.

d. Draw a payoff profile that includes all four puts on the same graph.