The value of a European call will increase with all of the following except:
A) the spot exchange rate.
B) the exercise price.
C) time to maturity.
D) the foreign interest rate.

Question

Quizplus · Accepted Answer

The value of a European call option on a currency increases with the spot exchange rate, time to maturity, and the foreign interest rate because these factors increase the likelihood of the option being in-the-money. However, an increase in the exercise price reduces the option's value since it makes it less likely that the option will be exercised profitably.

The Value of a European Call Will Increase with All