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An exchange rate is currently 0.8. It is expected to move up to 0.84 or down to 0.76 in the next three months. The risk-free
An exchange rate is currently 0.8. It is expected to move up to 0.84 or down to 0.76 in the next three months. The risk-free interest rates in the domestic and foreign currency are 4% and 6%, respectively.
a. What is the probability of an up movement (risk neutral methodology)?
b. What is the value of a 3-month call option with a strike of 0.82?
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