Question 3. Currency Option Pricing with Binomial Model {10 marks} Dn january 11r the spot exchange rate for the US. dollar is $0.11] per Canadian dollar. In one year's time. the Canadian dollar is expected to appreciate by 20 percent or depreciate by 15 percent. We have a European put option on US. dollars expiring in one year. with an exercise price of 1.39 CND$IUS$, that is currently selling for a price of $2.93. Each put option gives the holder the right to sell l U.S. dollars. The current one-year Canadian Treasury Bill rate is 2 percent. while the one-year U.5. Treasury Bill rate is 3 percent, both compounded annually. "Heat the Canadian dollar as the domestic currency. a. What is the estimated 1lralue of this put option by using the binomial model? [5 marks! b. Calculate the estimated 1uraiue of this put option for U.S. T-Bill rates of [1%. 1%. 2%. 4%. 5%. and 15%. Plot these 1values in a graph {by hand or using Excel]. with put option values on the y-axis and LLB. T-bill rates on the x-axis. What can we conclude about the relationship between foreign interest rates and foreign currency put option VHIUEE? {2.5 marks! c. Calculate the estimated value of this put option for Canadian T-Bill rates of (1%, 1%. 2%. 4%, 5%. and 5%. Plot these values in a graph [by hand or using Exceli, with put option values on the y-axis and Canadian T-bill rates on the x-axis. What can we conclude about the relationship between domestic interest rates and foreign currency put option values? {2.5 marks}