11. U.S. Dollar/Euro. The exhibit on the following page indicates that a one-year call option on euros at a strike rate of $1.25/ will cost the buyer $0.0366/, or 4.56%. But that assumed a volatility of 10.5% when the spot rate was $1.2674/E. What would that same call option cost if the volatility was reduced to increased to 12% when the spot rate fell to $1.2480/?

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Pricing Currency Options on the Euro A US based firm wishing to buy or sell euros (the foreign currency) Variable Value A European firm wishing to buy or sell dollars (the foreign currency) Variable Value Spot rate (domestic/foreign) Strike rate (domestic/foreign) Domestic interest rate (% p.a.) Foreign interest rate (% p.a.) Time (years, 365 days) Days equivalent $248 0.8013 $1.2500 X 0.8000 2.187% 2:000 365.00 1.453% 1000 365.00 Volatility (%p.a.) 10.500% 10.500% Call option premium (per unit fe) $0.0461 0.0366 Put option premium (per unit fc) $0.0570 P 0.0295 (European pricing) Call option premium (%) 69% 1.56% Put option premium (%) P 4-57% P 3.68%