The cost of dollar denominated call option on the euro

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Suppose that currently one euro costs $0.88; that is, the current exchange rate is $0.88/€. We are interested in one year calls on the euro that have strike equal to $0.90. The risk free rate for dollars is 5%, the risk-free rate for euros is 3%, and the volatility of the dollar to euro exchange rate is 0.1. Determine the cost of a dollar denominated call option on the euro that has strike 0.90.

 

Reference no: EM131923881

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