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Let's say the spot exchange rate is 1.9$/pound and next year the spot rate could either be 2.1$/pound or 1.7$/pound. The U.S. interest rate is

Let's say the spot exchange rate is 1.9$/pound and next year the spot rate could either be 2.1$/pound or 1.7$/pound. The U.S. interest rate is 10% and the U.K. interest rate is 7%.

a) Find the price of a 1-year European call option for 1 pound with a strike price of $1.8/pound.

b) What is the time value of the option in part a.

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