The current AUD vs. NZD spot rate is S(NZD/AUD) = 1.06. In 1 month, the spot rate can take one of two values: 1.03 and 1.09.  One month interest rates are 0.5%pa in Australia and 0.6%pa in New Zealand. What is the no-arbitrage NZD price of a one month put on AUD 75,000 vs. the NZD with strike price of 1.07, ignoring any possible transaction costs?

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Solution first we need to calculate the potential pa... View the full answer