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Suppose that you purchase the following portfolio of currency options today: 1. A EUR 100m at-the-money EUR call / AUD put option with 1 month
Suppose that you purchase the following portfolio of currency options today: 1. A EUR 100m at-the-money EUR call / AUD put option with 1 month maturity. 2. A EUR 100m at-the-money EUR put / AUD call option with 1 month maturity. 1 month interest rates are currently 1%pa in both markets. From today to next week, market volatility, interest rates in both EUR and USD and the spot FX rate are unchanged. Therefore: None of the other answers. O The portfolio is expected to gain value because its vega is positive. O We cannot make a meaningful prediction about tomorrow's portfolio value based on the information given in the question. O The portfolio is expected to lose value because its theta is negative. The portfolio is expected to lose value because its theta is positive
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