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Question 5 Suppose that the spot price of one Canadian dollar is U.S. $0.85 and the Canadian dollar to U.S. dollar exchange rate has a

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Question 5 Suppose that the spot price of one Canadian dollar is U.S. $0.85 and the Canadian dollar to U.S. dollar exchange rate has a volatility of 25% per annum. The risk-free rates (continuously compounded) in Canada and the United States are 3% p.a. and 2% p.a. respectively. Calculate the value of a nine-month European put option on Canadian dollar with an exercise price of U.S. $0.80 using the Garman-Kohlhagen model (GKM model). 5

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