Question: Show all work, including the formulas you are using. If you use your calculator, explain the steps you are using. Partial credit will be given.

Show all work, including the formulas you are using. If you use your calculator, explain the steps you are using. Partial credit will be given.

1. Suppose that the spot price of a Canadian dollar is U.S. $0.75 and that the exchange rate has a volatility of 4% per year. Risk-free interest rates are 9% in the U.S. and 7% in Canada. a. Calculate the price of a 9-month European call option to buy one Canadian dollar for U.S. $0.75. Express your answer in terms of the the cumulative normal distribution function, N(x). b. What is the price of a 9-month option to buy U.S. $0.75 for one Canadian dollar?

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