Accounting

4. Consider a currency future option on 10, 000 that Will expire in a year. Assume that current spot exchange rate is So($ / .1} ) = $1.3000/, and this option's strike price equals the one year forward rate F1($/) We also assume that IRP holds during this period. The annual riskfree interest rates for GBP and USD are respectively 5% and 6%. After one year, the spot exchange rate will be either $1.2000/ or $1.4000/. Use both the binomial futures option pricing method and the risk neutral valuation method to calculate the price of this future option. (20')