Question
Which of the following statements is true? a. If the forward rate is an unbiased predictor of the future spot rate, then at the time
Which of the following statements is true?
a. If the forward rate is an unbiased predictor of the future spot rate, then at the time of the purchase of a foreign exchange call option the expected payoff from holding the option to maturity is the forward rate minus the strike price of the option.
b. If the forward rate is an unbiased predictor of the future spot rate, then at the time of the purchase of a foreign exchange call option the expected payoff from holding the option to maturity is the strike price of the option minus the forward rate.
c. Relatively lower domestic interest rates imply an increase in the value of foreign exchange call options because the present value of the strike price is higher.
d. Higher foreign interest rates imply an increase in the value of a foreign exchange put option because in equilibrium the underlying asset on the derivative is expected to rise in value.
e. All the other statements are false
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