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A Euor-based (EUR) investor wants to buy a call on the U.S. dollar (USD). The current exchange rate is 0.95 USD/EUR. The one-year risk free
A Euor-based (EUR) investor wants to buy a call on the U.S. dollar (USD). The current exchange rate is 0.95 USD/EUR. The one-year risk free rate in the Euro area id 5% per anunum with continuous compounding and in th United States is 6.5% per annum with continuous compounding. Assume a volatility of 18% on the exchange rate. What is the price of a one-year European-style call option on the U.S. dollar with a strike of 1.00 EUR/USD.
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