If the exchange rate's volatility is rising, and therefore the risk of the option not being exercised is decreasing, the option premium would be increasing.

Name: If the exchange rate's volatility is rising, and therefore the risk of the option not being exercised is decreasing, the option premium would be increasing.
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Question

Quizplus · Accepted Answer

Higher volatility in exchange rates increases the likelihood of an option moving into the money before expiration, thus increasing its value and consequently the premium charged for it.

If the Exchange Rate's Volatility Is Rising, and Therefore the Risk