The current value of the British pound is $1.60 and the volatility of the pound/dollar exchange rate is 15% per annum. An American call option has an exercise price of $1.62 and a time to maturity of 1 year. The risk-free rates of interest in the United States and the United Kingdom are 6% per annum and 9% per annum, respectively. Use the explicit finite difference method to value the option. Consider exchange rates at intervals of 0.20 between 0.80 and 2.40 and time intervals of 3 months.

AppendixLO1