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On December 9, a Swiss franc call option expiring on January 13 had an exercise price of

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On December 9, a Swiss franc call option expiring on January 13 had an exercise price of $0.46. The spot exchange rate was $0.4728. The U.S. risk-free rate was 7.1 percent, and the Swiss risk-free rate was 3.6 percent. The volatility of the exchange rate was 0.145. Determine whether the call was correctly priced at $0.0163?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
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S 0 04728 X 046 r c 0071 c 0036 0145 T 35365 00959 based on 35 days between December 9 and Janu...View the full answer


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A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.

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