The dollar-euro exchange rate is $1.30/€. The dollar interest rate is 2% and the euro interest rate is 3%. What is the price of a six-month call option to buy euros at a strike price of $1.25/€? The volatility of the $/€ exchange rate is 40%.
A) $0.82
B) $0.86
C) $0.96
D) $1.06
Correct Answer:
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