Suppose that the spot price of a Canadian dollar is U.S. $0.95 and that the exchange rate has a volatility of 5% per year. Risk-free interest rates are 6% in the U.S. and 4% in Canada.

Calculate the price of a 6-month European call option to buy one Canadian dollar for U.S. $0.95. Express your answer in terms of the cumulative normal distribution function, N(x), as in the answers to question 16 in part 1.

b. What is the price of a 6-month option to buy U.S. $0.95 for one Canadian dollar?