1) A put option on British pounds against the US dollar with exactly a three month expiration date has a strike price of $1.70. The current or spot exchange rate between the US dollar and the British pound is $1.59 and the exchange pair has a volatility of 30 per cent per year. The continuously compounded risk-free rate is 3.5 per cent per year for the US dollar and 2 per cent per year for the British pound. Using one-month steps what will be the price of the currency option if it is European-style?

2) What will be the value of the currency option in Part (1) above if it is American-style and can be exercised early? When is exercise likely?