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Question 4 (a) Discuss the difference between American and European options. Should they be priced the same? Why or why not? (b) What are the

Question 4

(a) Discuss the difference between American and European options. Should they be priced the same? Why or why not?

(b) What are the benefits and risks of an OTC market relative to an exchange? How does the exchange manage the risks associated with OTC?

(c) Suppose Reserve Bank of Australia decides to reduce the cash rate to 0. What do you think will be the effect on AUD? Use UIP to explain the effect

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