Problem 7.11

Assume the spot Swiss franc is $0.7095 and the six-month forward rate is $0.7140. What is the Value of a six-month call and a put option with a strike price of $0.6895 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the European option-pricing models to value the call and put option. This problem can be solved using the FXOPM.xls spreadsheet. (Do not round intermediate calculations. Round your answers to 2 decimal places.)