Question: How would the call option premium change on the right to buy pounds with euros if the euro interest rate changed to 4.000% from the

How would the call option premium change on the right to buy pounds with euros if the euro interest rate changed to 4.000% from the initial values listed in the FX Option Pricing workbook?

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 Variable Spot rate (domestic/toreign) Strike rate (domestic/foreign) Domestic interest rate (% pa) Foreign interest rate (% pa) Time (years, 365 days) Value $12480 $1.2500 1.453% 21 87% Value 0.8013 0.8000 2.187% 1.453% 1.000 365.00 10 500% $0.0461 $0.0570 1.000 Days equivalent Volatility (% pa) Call option premium (per unit fc) Put option premium (per unit fc) 365.00 10.500% 0.0366 0.0295 European pricing) Call option premium (%) Put option premium (%) 3.69% 4.56% 4.57% 3.68%

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