Question
You are going to receive a large payment from Europe next year and want to protect yourself against unfavorable moves in the exchange rate. In
You are going to receive a large payment from Europe next year and want to protect yourself against unfavorable moves in the exchange rate. In particular, you are going to receive 10,000 Euros in 9 months and want to be sure that they will be worth at least $9000 when you convert them. The current exchange rate is $1.10/Euro, the risk-free rate for Euros is 7%, the risk-free rate for $ is 4%, and a call option to buy 1 Euro in 9 months for 90 cents costs $0.20. What will it cost you to purchase the options you seek?
A. $59
B. $102
C. $201
D. $297
E. $391
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