Question: A call option on Australian dollars has a strike (exercise) price of $.56. The present exchange rate is $.59. Buyers of this option should a.

A call option on Australian dollars has a strike (exercise) price of $.56. The present exchange rate is $.59. Buyers of this option should

a.

none of the above answers are correct.

b.

do nothing because it is profitable to do so.

c.

exercise the option because it is profitable to do so.

d.

not exercise the option because it is profitable to do so.

A put option on British pounds has a strike (exercise) price of $1.48. The present exchange rate is $1.55. Buyers of this put option should

a.

none of the above answers are correct.

b.

do nothing because it is neither profitable nor unprofitable.

c.

not exercise the option because it is not profitable to exercise the option.

d.

exercise the option because it is profitable to do so.

A put option on Swiss franc has a strike (exercise) price of $.92. The present exchange rate is $.89. Buyers of this option should

a.

exercise the option because it is profitable to do so.

b.

exercise the option because it is not profitable to do so.

c.

not exercise the option because it is not profitable to do so.

d.

not exercise this option because it is profitable to do so.

The premium on a call option

a.

is usually not affected by the length of time before expiration.

b.

is affected by the length of time before expiration: The longer the time to expiration, the lower the option price will be.
c.

is affected by the length of time before expiration: The longer the time to expiration, the higher the option price will be.
d.

is not affected by the length of time before expiration.

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