Suppose the current spot rate for the Australian dollar is U.S.$0.832The intrinsic value of an A$50,000 call option with an exercise price of U.S.$0.8195 is

Question

Quizplus · Accepted Answer

Intrinsic value of a call option is calculated as the difference between the spot rate and the exercise price. 
Here, intrinsic value = Spot rate - Exercise price
= $0.832 - $0.8195
= $0.0125 per A$
So, intrinsic value of an A$50,000 call option = $0.0125 x 50,000 = $625
Therefore, the best choice is B) $630 as it is the closest option to the calculated intrinsic value.

Suppose the Current Spot Rate for the Australian Dollar Is