The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00. Consider a three-month American call option on €62,500. For this option to be considered at-the-money, the strike price must be A)$1.60 = €1.00 B)$1.55 = €1.00 C)$1.55 × (1 + i_$)^3/12 = €1.00 × (1 + i_€)^3/12 D)none of the above

Question

Quizplus · Accepted Answer

For the option to be considered at-the-money, the strike price must be equal to the current spot exchange rate, which is $1.55 = €1.00.

The Current Spot Exchange Rate Is $1