To hedge risk, multinational companies often use financial instruments such as options and futures. Answer the following questions regarding options and futures.

Questions:

(1)A put option with exercise price of $1.50/ currently sells for $0.15/. The current spot rate is $1.6/. Calculate the intrinsic value and time value of the put option. At that future spot rate will the buyer of the put option be break-even?

(2)How does the strike (exercise) price affect currency call option premium? Explain.

(3)How does the home currency interest rate affect the premium of call options written on foreign currency? Explain.

(4)How does the interest rate differential (id-if) affect the premium of call options written on foreign currency? Explain. (Note: 'id' is home currency interest rate; 'if' is foreign currency interest rate).