The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price; the upper bound of a currency call option is the spot rate.

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Quizplus · Accepted Answer

This statement is true. The lower bound of a call option premium is the intrinsic value, which is the difference between the spot rate and the exercise price. If the intrinsic value is negative, the option premium cannot be negative and will be equal to zero. The upper bound of a currency call option is theoretically unlimited, as the currency can appreciate indefinitely, but in practice, the upper bound is the spot rate.

The Lower Bound of the Call Option Premium Is the Greater