A call option on Japanese yen has a strike (exercise) price of $.012. The present exchange rate is $.011. This call option can be referred to as:
A) in the money.
B) out of the money.
C) at the money.
D) at a discount.

Question

Quizplus · Accepted Answer

A call option is considered "in the money" if the strike price is lower than the current exchange rate, meaning it would be profitable to exercise the option at the current exchange rate. Conversely, a call option is "out of the money" if the strike price is higher than the current exchange rate, meaning it would not be profitable to exercise the option at the current exchange rate. In this case, since the strike price of $.012 is higher than the current exchange rate of $.011, the call option is out of the money.

A Call Option on Japanese Yen Has a Strike (Exercise)