(*) (FFOM 15.25 modified) Suppose that the spot price of the Canadian dollar is\ U.S.

$0.95

and that the Canadian dollar/U.S. dollar exchange rate has a volatility\ of

8%

per annum. The risk-free rates of interest in Canada and the United States\ are

3%

and

6%

per annum, respectively. Calculate the value of a European call\ option to buy one Canadian dollar for U.S. $0.95 in nine months. Use put-call\ parity to calculate the price of a European put option to sell one Canadian dollar\ for U.S.

$0.95

in nine months.\ What is the CAD-denominated price of a European call option to buy one U.S.\ dollar for Canadian

$1.0526(=(1)/(0.95))

in nine months?

(*) (FFOM 15.25 modified) Suppose that the spot price of the Canadian dollar is U.S. $0.95 and that the Canadian dollar/U.S. dollar exchange rate has a volatility of 8% per annum. The risk-free rates of interest in Canada and the United States are 3% and 6% per annum, respectively. Calculate the value of a European call option to buy one Canadian dollar for U.S. $0.95 in nine months. Use put-call parity to calculate the price of a European put option to sell one Canadian dollar for U.S. $0.95 in nine months. What is the CAD-denominated price of a European call option to buy one U.S. dollar for Canadian $1.0526(=1/0.95) in nine months