Imagine that you are taking a trip to Sweden in five months to hand select your brand new Volvo XC90,

which will cost 550,000 kr (Swedish Krona), at a local dealership. You will pay for it when you arrive,

drive it around Malm o, then it will be shipped back to your residence in the United States. You currently

have US dollars in your bank account. Suppose that the spot exchange rate is 8.8kr/

$

, the forward rate

for 5 months from now is 8.6kr/

$

, and there is a call option available which will expire 6 months from

now with a striking price of 8.7kr/

$

and a premium of 0.2 US cents per kronor.