U.S. Dollar-Euro. The table, = indicates that a 1-year call option on euros at a strike...
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U.S. Dollar-Euro. The table, = indicates that a 1-year call option on euros at a strike rate of $1.2505 €1.00 will cost the buyer $0.0464 per €, or 3.71%. But that assumed a volatility of 10.500% when the spot rate was $1.2493 = €1.00. What would that same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2479 = €1.00? The same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2479 = €1.00 would be $ ☐ /€. (Round to four decimal places.) Pricing Currency Options on the Euro A U.S.-based firm wishing to buy or sell euros (the foreign currency) Variable Value A European firm wishing to buy or sell dollars (the foreign currency) Variable Value Spot rate (domestic/foreign) Forward rate (domestic/foreign) SO $ 1.2493 SO € 0.8004 FO $ 1.2402 FO € 0.8063 Strike rate (domestic/foreign) X $ 1.2505 X € 0.7997 Domestic interest rate (% p.a.) rd 1.453 % rd 2.186 % Foreign interest rate (% p.a.) rf 2.186 % rf 1.453 % Time (years, 365 days) T 1.000 T 1.000 Days equivalent 365.00 365.00 Volatility (% p.a.) S 10.500 % S 10.500 % U.S. Dollar-Euro. The table, = indicates that a 1-year call option on euros at a strike rate of $1.2505 €1.00 will cost the buyer $0.0464 per €, or 3.71%. But that assumed a volatility of 10.500% when the spot rate was $1.2493 = €1.00. What would that same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2479 = €1.00? The same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2479 = €1.00 would be $ ☐ /€. (Round to four decimal places.) Pricing Currency Options on the Euro A U.S.-based firm wishing to buy or sell euros (the foreign currency) Variable Value A European firm wishing to buy or sell dollars (the foreign currency) Variable Value Spot rate (domestic/foreign) Forward rate (domestic/foreign) SO $ 1.2493 SO € 0.8004 FO $ 1.2402 FO € 0.8063 Strike rate (domestic/foreign) X $ 1.2505 X € 0.7997 Domestic interest rate (% p.a.) rd 1.453 % rd 2.186 % Foreign interest rate (% p.a.) rf 2.186 % rf 1.453 % Time (years, 365 days) T 1.000 T 1.000 Days equivalent 365.00 365.00 Volatility (% p.a.) S 10.500 % S 10.500 %
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To calculate the cost of the same call option when the volatility is reduced to 10500 and the spot r... View the full answer
Related Book For
Fundamentals of Multinational Finance
ISBN: 978-0205989751
5th edition
Authors: Michael H. Moffett, Arthur I. Stonehill, David K. Eiteman
Posted Date:
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