How is the fair value of a foreign currency option calculated?
A) By using the Box-Jenkins technique
B) Using the modified Black-Scholes pricing model
C) Through an arms-length transaction
D) Using quotes given daily in the Wall Street Journal

Question

Quizplus · Accepted Answer

The fair value of a foreign currency option is typically calculated using the modified Black-Scholes pricing model, which takes into account factors such as the underlying exchange rate, strike price, time to expiration, interest rates, and volatility. This model is widely used in the financial industry for pricing and valuing various types of options.

How Is the Fair Value of a Foreign Currency Option