5. Currency Call Options The premium on a call option is primarily a function of the difference in spot price S relative to the strike price X, the length of time until expiration T, and the volatility of the currency o. C = f(S-X, T, 0) For each characteristic of a call option, use the table to indicate whether that would lead to a higher call option premium or a low call option premium (all else equal). Characteristic Higher Call Option Premium Lower Call Option Premium A lower spot price relative to the strike price A shorter time before expiration maximum A lower level of volatility for the currency minimum amount of dollars needed When using a call option to hedge payables in an international currency, a U.S. based MNC can lock in the to obtain the needed foreign currency