Suppose That You Observe a European Option on a Currency

Multiple Choice

Suppose that you observe a European option on a currency with an exchange rate of S₀ and a foreign risk-free rate of . Which of the following inequalities correctly expresses the lower bound of the call?

A) C_e(S₀,T,X) ≥ Max[0,S₀(1 + ) ^-T + X(1 + r) ^-T]
B) C_e(S₀,T,X) ≥ Max[0,S₀ - X(1 + ) ^-T]
C) C_e(S₀,T,X) ≥ Max[0,S₀(1 + ) ^-T - X]
D) C_e(S₀,T,X) ≥ Max[0,S₀(1 + ) ^-T - X(1 + r) ^-T]
E) none of the above