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1.The Canadian dollar-Euro exchange rate (Canadian dollar price of euros) is currently 1.26. In 4 months time the exchange rate will be either 1.28 or

1.The Canadian dollar-Euro exchange rate (Canadian dollar price of euros) is currently 1.26. In 4 months time the exchange rate will be either 1.28 or 1.24. A European call option on euros expiring in 4 months has strike price K = 1.25 CAD per euro. The risk free rate in Canada is 2 percent per annum and the European risk free rate is 1 percent per annum. Solve for the option price in the one step binomial model.

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