Suppose the exchange rate is $1.09/A$, the Australian dollar-denominated continuously compounded interest rate is 2%, the U.S. dollar-denominated continuously compounded interest rate is 6%, and the exchange rate volatility is 19%. What is the Black-Scholes value of a 9-month $0.95-strike European call on the Australian dollar?

Option C is correct, but how? Can you provide solution for Excel? formulas and steps or actual excel work sheet please?

Answers:

a. $0.1683

b. $0.0131

c. $0.1786

d. $0.0386

e. $0.1400