The current exchange rate is €1.25 = £1.00 and a British firm offers a French customer the choice of paying a £10,000 bill due in 90 days with either £10,000 or €12,500.
A)The seller has given the buyer an at-the-money put option on euro with a strike in pounds.
B)The seller has given the buyer an at-the-money put option on pounds with a strike in euro.
C)The seller has given the buyer an at-the-money call option on euro with a strike in pounds.
D)None of the above

Question

Quizplus · Accepted Answer

The buyer has the option to pay either in pounds or euros at the current exchange rate, which is equivalent to a put option on euros with a strike price in pounds.

The Current Exchange Rate Is €1