Q.4 Contingent assets and currencies (25pts)

a) Using the Garman-Kolhagen (1983) formula, calculate the price of an exchange rate call

knowing the following information:

- spot exchange rate $ 1.58 / E; exercise price 1.60S / ; USD rate: 3.1%; GBP rate: 4.0%; volatility:

19%; maturity: 0.25 years.

b) From your results obtained in a), calculate the Delta, Gamma, Theta, elasticity, Vega and Rho

of the option.

c) Define and explain what the implicit clause is within the framework of the Garman-Kolhagen formula

d) Define the different types of exotic options on the exchange rate.

e) Establish the valuation formulas of a currency swap in terms of bond portfolio and

FRA. From the following information, calculate the value of this swap in terms of FRA:

-A financial institution has entered into an annual payment swap whereby it receives 5.2% in yen and pays

8.4% in US dollars. Spot exchange rate: 11 1V / S; the LIBOR / Swap term structure is plates: rate

US interest rate: 9.2%, Japanese interest rate: 4.3%; major: US 10.75 million and US $ 1.23 billion

yen; the remaining life is 4 years.