Question: U.S. Dollar/Euro. The table, indicates that a 1-year call option on euros at a strike rate of $1.2501/ will cost the buyer 50.0467/, or 3.74%.

U.S. Dollar/Euro. The table, indicates that a 1-year call option on

U.S. Dollar/Euro. The table, indicates that a 1-year call option on euros at a strike rate of $1.2501/ will cost the buyer 50.0467/, or 3.74%. But that assumed a volatility of 10.500% when the spot rate was $1.2495/. What would the same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2477/? or sell euros (the foreign currency) or sell dollars (the foreign currency) Value Spot rate (domestic foreign) Forward rate (domesticforeign) Strike rate (domestilforeign) Domestic interest rate(%p.a.) Foreign interest rate (p.a.) Time (years, 365 days) Days equivalent Volatility (% p.a.) Variable SO FO X rd If T Value $ 12495 $ 12404 $ 12501 1.452 2.186 1.000 365.00 10.500 % Variable SO FO X rd rf T 0 8003 0.3062 0.7999 2.186 1.452 1.000 365.00 10.500 5 5 dt d1 d2 d2 -0.0217 -0.1267 0.4913 0.4496 0.1272 0.0222 0.5506 0.5089 N(01) N[42) Nd1) N(02) c c Call option premium (per unit fc) Put option premium (per unit fc) (European pricing) $0.0457 $ 0.0562 0.0350 0.0299 P c % 4.50 Call option premium (%) Put option premium (%) 3.74 450 P 3.74

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