U.S. Dollar/Euro. The table indicates that a 1-year call option on euros at a strike rate of $1.2499/ will cost the buyer $0.0632/, or 4.99%. But that assumed a volatility of 12.000% when the spot rate was $1.2671/. What would the same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2484 / ? The same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.24841 would be $1. (Round to four decimal places.) Pricing Currency Options on the Euro A U.S.-based firm wishing to buy or sell euros (the foreign currency) A European firm wishing to buy or sell dollars (the foreign currency) Variable Value Variable Value so $ 1.2671 SO 0.7892 FO $ 1.2579 FO 0.7950 $ 1.2499 0.8001 rd 1.454 % rd 2.186 % Spot rate (domestic/foreign) Forward rate (domestic/foreign) Strike rate (domestic/foreign) Domestic interest rate (% p.a.) Foreign interest rate (% p.a.) Time (years, 365 days) Days equivalent Volatility (% p.a.) 2.186 % rf 1.454 % T 1.000 T 1.000 365.00 365.00 S 12.000 % S 12.000 % d1 0.1132 d1 0.0067 d2 -0.0068 d2 -0.1133 0.5451 0.5027 N(1) N(D2) N(D1) N(D2) 0.4973 0.4549 $ 0.0632 C 0.0349 Call option premium (per unit fc) Put option premium (per unit fc) (European pricing) $ 0.0553 0.0399 C 4.99 % 4.42 % Call option premium (%) Put option premium (%) 4.36 % p 5.06 % U.S. Dollar/Euro. The table indicates that a 1-year call option on euros at a strike rate of $1.2499/ will cost the buyer $0.0632/, or 4.99%. But that assumed a volatility of 12.000% when the spot rate was $1.2671/. What would the same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2484 / ? The same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.24841 would be $1. (Round to four decimal places.) Pricing Currency Options on the Euro A U.S.-based firm wishing to buy or sell euros (the foreign currency) A European firm wishing to buy or sell dollars (the foreign currency) Variable Value Variable Value so $ 1.2671 SO 0.7892 FO $ 1.2579 FO 0.7950 $ 1.2499 0.8001 rd 1.454 % rd 2.186 % Spot rate (domestic/foreign) Forward rate (domestic/foreign) Strike rate (domestic/foreign) Domestic interest rate (% p.a.) Foreign interest rate (% p.a.) Time (years, 365 days) Days equivalent Volatility (% p.a.) 2.186 % rf 1.454 % T 1.000 T 1.000 365.00 365.00 S 12.000 % S 12.000 % d1 0.1132 d1 0.0067 d2 -0.0068 d2 -0.1133 0.5451 0.5027 N(1) N(D2) N(D1) N(D2) 0.4973 0.4549 $ 0.0632 C 0.0349 Call option premium (per unit fc) Put option premium (per unit fc) (European pricing) $ 0.0553 0.0399 C 4.99 % 4.42 % Call option premium (%) Put option premium (%) 4.36 % p 5.06 %