effects of this clause if (i) they must decide today which currency they will use for each payment or (ii) if they may flexibly wait until each payment to decide on the currency. 3. (Exra Credit) Using recent data on the Euro, calculate the annualized volatility of the exchange rate. (Note: The annualized volatility is times the daily volatility). Express the flexible payment alternative 2. (b) (ii) above in terms of currency options. Value those options using the Black-Scholes formula, and show your work. Additional Information Spot rate on Dec 1, 1984: DM 3.10/$. Euro deposit rates (in % p.a.) per Dec 1, 1984: 1 year 2 years 3 years US $ 12.00 DM 5.50 12.50 5.75 13.00 6.00