Q1 - Time value of American option represents the value of keeping option alive and waiting till a later time to exercise so as to better off.

A- True

B - False

Q2 - We observe where is the direct forward exchange rate, is the domestic risk-free rate, is the foreign riskfree rate, T is the maturity of the forward contract, is the direct spot exchange rate.

Choose an action from below to arbitrage:

A - At time 0, we convert the foreign currency we borrowed into domestic currency.

B - At time 0, borrow 1000 foreign currency at r_f for T.

C - At time 0, borrow 1000 domestic currency at r_d for T.

D - Long forward: buy the foreign currency at T at F₀ using domestic currency received from the domestic bank.