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A nine month call option on Canadian dollars has a strike price of $.75.The current exchange rate $.75, the U.S. risk free rate is 7%

A nine month call option on Canadian dollars has a strike price of $.75.The current exchange rate $.75, the U.S. risk free rate is 7% per year, the Canadian risk free rate is 9% and the volatility is 6% per year.

a. Suppose the call is European.What is the Black-Scholes price of the call?

b. Divide the time to expiration into four binomial periods (please show the binomial trees):

i. What is the binomial price assuming the call is European?

ii What is the price assuming the call is American?

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