The table above indicates that a 1-year call option on euros at a strike rate of $1.25/€ will cost the buyer $0.0632/€, or 4.99%. But that assumed a volatility of 12.000% when the spot rate was $1.2674/€. What would that same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2480/€?

Pricing Currency Options on the Euro A U.S.-based firm wishing to buy or sell euros (the foreign currency) A European firm wishing to buy or sell dollars (the foreign currency) Variable Variable Spot rate (domestic/toreign) Strike rate (domestic/foreign) Domestic interest rate (% pa) Foreign interest rate (% pa) Time (years, 365 days) Value $12480 $1.2500 1.453% 21 87% Value 0.8013 0.8000 2.187% 1.453% 1.000 365.00 10 500% $0.0461 $0.0570 1.000 Days equivalent Volatility (% pa) Call option premium (per unit fc) Put option premium (per unit fc) 365.00 10.500% 0.0366 0.0295 European pricing) Call option premium (%) Put option premium (%) 3.69% 4.56% 4.57% 3.68%