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What is the value in yen of a derivative that pays off Euro 50,000 in 12 months provided that the dollar-Euro exchange rate is greater
What is the value in yen of a derivative that pays off Euro 50,000 in 12 months provided that the dollar-Euro exchange rate is greater than Euro 0.9150/$ at the time? The current exchange rate is Euro 0.9100/$. The dollar and Euro interest rates are 4.5% and 4% per annum, respectively. The volatility of the exchange rate is 15% per annum.
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