Currency-translated options have
A)only asset prices denoted in a foreign currency.
B)only exercise prices denoted in a foreign currency.
C)payoffs that only depend on the maximum price of the underlying asset during the life of the option.
D)either asset or exercise prices denoted in a foreign currency.

Question

Quizplus · Accepted Answer

Currency-translated options can have either the asset prices or exercise prices (or both) denoted in a foreign currency. This allows investors to hedge against currency fluctuations and reduces their exposure to currency risk. The payoff of these options can be based on various factors, such as the maximum price of the underlying asset during the life of the option, or the difference between the spot price and the strike price at expiration. Therefore, neither A nor B can be the correct answer. C is also incorrect because the payoff of currency-translated options depends on various factors, not just the maximum price of the underlying asset.

Currency-Translated Options Have