If the Bank of England announces that it will start to frequently intervene in order to reduce the fluctuations of British pound, the premiums on call and put options will increase.

Question

Quizplus · Accepted Answer

If the Bank of England announces frequent intervention to reduce fluctuations of the British pound, it would create more stability and reduce volatility in the currency market. As a result, the premiums on call and put options would decrease, not increase, because there would be less uncertainty about the future exchange rate.

If the Bank of England Announces That It Will Start