Question
Today the spot exchange rate is equal to 2$/ and next year it can either go up to 2.2$/ or down to 1.82$/. Domestic ($)
Today the spot exchange rate is equal to 2$/ and next year it can either go up to 2.2$/ or down to 1.82$/. Domestic ($) interest rate is 9% and foreign () interest rate is 5%
Find the price of 1-year European call option on 1 with strike price of 2.3$/
Find the price of 1-year European call option on 1 with strike price of 1.9$/
Find the price of 1-year European put option on 1 with strike price of 1.9$/
Assume that the foreign () interest rate and current $/ exchange rate have changed and you dont know their new values. However, option prices of the two options you found in questions 13 and 14 and domestic interest rate did not change. Find $/ forward rate.
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