Question
The current spot exchange rate is $1.55 = 1.00 and the three-month forward rate is $1.60 = 1.00. Consider a three-month American call option on
The current spot exchange rate is $1.55 = 1.00 and the three-month forward rate is $1.60 = 1.00. Consider a three-month American call option on 62,500 with a strike price of $1.60 = 1.00. Immediate exercise of this option will generate a profit of
| $3,125. | ||
| negative profit, so exercise would not occur. | ||
| $6,125/(1 + i$)3/12. | ||
| $6,125. |
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Public Finance In Theory And Practice
Authors: Richard Abel Musgrave, Peggy B. Muscrave
5th Edition
0070441278, 978-0070441279
