The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00.Consider a three-month American call option on €62,500.For this option to be considered at-the-money,the strike price must be A)$1.60 = €1.00 B)$1.55 = €1.00 C)$1.55 * (1+i_$)^3/12 = €1.00 *(1+i_€)^3/12 D)none of the above

Question

Quizplus · Accepted Answer

For an option to be considered at-the-money, the strike price should be equal or close to the current spot exchange rate. In this case, the current spot exchange rate is $1.55 = €1.00, so the closest option strike price would be $1.55 = €1.00. None of the other answer choices are close to the current spot exchange rate.

The Current Spot Exchange Rate Is $1