For european currency options written on euro with a

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54) For European currency options written on euro with a strike price in dollars, what is the effect of an increase in the exchange rate S($/€)? A) Decreases the value of calls and puts ceteris paribus B) Increases the value of calls and puts ceteris paribus C) Decreases the value of calls, increases the value of puts ceteris paribus D) Increases the value of calls, decreases the value of puts ceteris paribus
55) For European currency options written on euro with a strike price in dollars, what is the effect of an increase in the exchange rate S(€/$)?
56) The equation for a European Call Option is a function of which variables? A B
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solutiontestbank.com C) Both A and B D) Neither A or B Version 1 19
solutiontestbank.com 57) The hedge ratio
58) Find the value of a call option written on €100 with a strike price of $1.00 = €1.00. In one period, there are two possibilities: the exchange rate will move up by 15 percent or down by 15 percent (i.e. $1.15 = €1.00 or $0.85 = €1.00). The U.S. risk-free rate is 5 percent over the period. The risk- neutral probability of dollar depreciation is 2 / 3 and the risk- neutral probability of the dollar strengthening is 1 / 3 {MISSING IMAGE} . A) $9.5238 B) $0.0952 C) $0 D) $3.1746
59) Use the binomial option pricing model to find the value of a call option on £10,000 with a strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 (i.e. u = 1.6 and d = 1/ u = 0.625). The current interest rates are i = 3% and are i £ 4%. Choose the answer closest to yours . =
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solutiontestbank.com C) €3,373 D) €3,243 Version 1 21
solutiontestbank.com 60) Find the hedge ratio for a call option on £10,000 with a strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 (i.e. u = 1.6 and d = 1/ u = 0.625).The current interest rates are i = 3% and are i £ = 4%. Choose the answer closest to yours .

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