The spot exchange rate of dollars per euro is 0.95.Dollar and euro interest rates are 7.0% and 6.0%,respectively.The price of a $0.93 strike 6-month call option is $0.08.What is the price of the put?

Question

Quizplus · Accepted Answer

To find the price of the put, we can use the put-call parity equation:
Put price + Strike price/(1+ foreign interest rate)^time = Call price + Spot price/(1+ domestic interest rate)^time

Plugging in the given information:
0 + 0.93/(1+0.06)^(6/12) = 0.08 + 0.95/(1+0.07)^(6/12)
Solving for the put price gives us:
Put price = 0.056
Therefore, the answer is choice C.

The Spot Exchange Rate of Dollars Per Euro Is 0