1 (20 points) Short Questions (Please briefly explain your answers.) (i) (5 points) An American call option on a foreign currency should never be exercised before maturity. Explain your answer. (ii) (5 points) Since a European call on the S&P500 has a lot of upside (when the stock price rises) but limited downside (when the stock price falls), it is a safer investment than the S&P500 index and should offer lower expected return than the S&P500 does. Explain your answer. (iii) (5 points) The Theta (O) of a put option is always positive because shrinking the time to maturity (due to a rise in t) leads to less discounting on the strike. Explain your answer. (iv) (5 points) Describe concisely the procedure for forecasting the probability of default for a publicly traded company using the Merton model. State clearly what information you need for the forecast