Multiple Choice
The current spot exchange rate is $1.55 = €1.00 and the three-month forward rate is $1.60 = €1.00. Consider a three-month American call option on €62,500 with a strike price of $1.50 = €1.00. Immediate exercise of this option will generate a profit of
A) $6,125.
B) $6,125/(1 + i$) 3/12.
C) negative profit, so exercise would not occur.
D) $3,125.
Correct Answer:
Verified
Correct Answer:
Verified
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