When a currency call option is classified as "in the money," this indicates that
A) the spot rate of the currency is less than the exercise price of the option.
B) the spot rate of the currency is greater than the exercise price of the option.
C) the buyer of the option would generate a profit; that is, the spot rate would exceed the sum of the exercise price and the premium paid.
D) the buyer of the option would generate a profit; that is, the exercise price would exceed the sum of the spot rate and the premium paid.

Question

Quizplus · Accepted Answer

When a currency call option is "in the money," it means the spot rate of the currency is greater than the exercise price of the option. This is because the buyer of the option would only exercise it if they can generate a profit, and they can only do so if the spot rate is higher than the exercise price.

When a Currency Call Option Is Classified as "In the Money