For European currency options written on euro with a strike price in dollars, what of the effect of an increase in r_$ relative to r_€? A)Decrease the value of calls and puts ceteris paribus B)Increase the value of calls and puts ceteris paribus C)Decrease the value of calls, increase the value of puts ceteris paribus D)Increase the value of calls, decrease the value of puts ceteris paribus

Question

Quizplus · Accepted Answer

An increase in the dollar interest rate (r$) relative to the euro interest rate (r€) makes holding dollars more attractive, increasing the present value of the strike price in dollar terms, which benefits call options and harms put options.

For European Currency Options Written on Euro with a Strike