Which of the following is correct?
A) The longer the time to maturity, the less the value of a currency call option, other things equal.
B) The longer the time to maturity, the less the value of a currency put option, other things equal.
C) The higher the spot rate relative to the exercise price, the greater the value of a currency put option, other things equal.
D) The lower the exercise price relative to the spot rate, the greater the value of a currency call option, other things equal.

Question

Quizplus · Accepted Answer

This statement is known as the fundamental principle of call option pricing. As the exercise price of a currency call option becomes lower relative to the spot rate, the likelihood that the option will be exercised increases, and therefore the value of the option also increases.

Which of the Following Is Correct