Suppose that you observe a European option on a currency with an exchange rate of S₀ and a foreign risk-free rate of $\rho$. Which of the following inequalities correctly expresses the lower bound of the call? A) C_e(S₀,T,X) ≥ Max[0,S₀(1 + $\rho$)^-T + X(1 + r)^-T] B) C_e(S₀,T,X) ≥ Max[0,S₀ - X(1 + $\rho$)^-T] C) C_e(S₀,T,X) ≥ Max[0,S₀(1 + $\rho$)^-T - X] D) C_e(S₀,T,X) ≥ Max[0,S₀(1 + $\rho$)^-T - X(1 + r)^-T] E) none of the above

Question

Quizplus · Accepted Answer

The Answer of Suppose that you observe a European option on a currency with an exchange rate of S₀ and a foreign risk-free rate of $\rho$. Which of the following inequalities correctly expresses the lower bound of the call? A) C_e(S₀,T,X) ≥ Max[0,S₀(1 + $\rho$)^-T + X(1 + r)^-T] B) C_e(S₀,T,X) ≥ Max[0,S₀ - X(1 + $\rho$)^-T] C) C_e(S₀,T,X) ≥ Max[0,S₀(1 + $\rho$)^-T - X] D) C_e(S₀,T,X) ≥ Max[0,S₀(1 + $\rho$)^-T - X(1 + r)^-T] E) none of the above

Suppose That You Observe a European Option on a Currency ρ\rhoρ

Suppose That You Observe a European Option on a Currency $\rho$