For a European call option on a currency,the exchange rate is 1.0000,the strike price is 0.9100,the time to maturity is one year,the domestic risk-free rate is 5% per annum,and the foreign risk-free rate is 3% per annum.How low can the option price be without there being an arbitrage opportunity?
A) 0.1048
B) 0.0900
C) 0.1344
D) 0.1211

Question

Quizplus · Accepted Answer

The correct answer is A because the option price cannot be lower than the intrinsic value of the option, which is 0.1048.

For a European Call Option on a Currency,the Exchange Rate