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# Problem 7.

6 Peleh's Puts

Peleh writes a put option on the Australian dollar (A\$) with a strike price of \$0.9100/A\$ at a premium of \$0.0245/A\$ and with an expiration date six months from now. The
option is for A\$100,000. What is Peleh’s profit or loss at maturity if the ending spot rates are \$0.8500/A\$, \$0.8800/A\$, \$0.9100/A\$, \$0.9400/A\$, and \$0.9700/A\$?

a) b) c) d) e)
Assumptions Values Values Values Values Values
Notional principal (AUD) 100,000 100,000 100,000 100,000 100,000
Maturity (days) 180 180 180 180 180
Strike price (USD/AUD) \$0.910000 \$0.910000 \$0.910000 \$0.910000 \$0.910000
Premium (USD/AUD) \$0.024500 \$0.024500 \$0.024500 \$0.024500 \$0.024500

## Ending spot rate (USD/AUD) 0.85 0.88 0.91 0.94 0.97

in USD/AUD \$1.176471 \$1.136364 \$1.098901 \$1.063830 \$1.030928

## Option premium (USD) 2450.00 2450.00 2450.00 2450.00 2450.00

Less put payoff (USD) \$6,000.00 \$3,000.00 \$0.00 \$0.00 \$0.00
Net profit/loss (USD) -3550.00 -550.00 2450.00 2450.00 2450.00
Problem 7.2 Amber McClain

Amber McClain, the currency speculator we met earlier in the chapter,sells eight June futures contracts for
500,000 pesos at the closing price quoted in Exhibit 7.1.

a. What is the value of her position at maturity if the ending spot rate is \$0.12000/Ps?
b. What is the value of her position at maturity if the ending spot rate is \$0.09800/Ps?
c. What is the value of her position at maturity if the ending spot rate is \$0.11000/Ps?

a. b. c.
Assumptions Values Values Values
Number of pesos per futures contract 500,000 500,000 500,000
Number of contracts 8.00 8.00 8.00
Buy or sell the peso futures? Sell Sell Sell

## Ending spot rate (\$/peso) \$0.12000 \$0.09800 \$0.11000

June futures settle price from Exh8.1 (\$/peso) \$0.10773 \$0.10773 \$0.10773
Spot - Futures \$0.01227 (\$0.00973) \$0.00227

## Value of total position at maturity (US\$) (\$49,080.00) \$38,920.00 (\$9,080.00)

Value = - Notional x (Spot - Futures) x 8

Interpretation
Amber buys at the spot price and sells at the futures price.
If the futures price is greater than the ending spot price, she makes a profit.
Problem 7.3 Cece Cao in Jakarta

Cece Cao trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S.
dollar/Singapore dollar (\$/S\$) cross-rate. The current spot rate is \$0.6000/S\$. After considerable study, she has concluded
that the Singapore dollar will appreciate versus the U.S. dollar in the coming 90 days, probably to about \$0.7000/S\$. She
has the following options on the Singapore dollar to choose from:

Put on Sing \$ \$0.6500/S\$ \$0.00003/S\$
Call on Sing \$ \$0.6500/S\$ \$0.00046/S\$

## a. Should Cece buy a put on Singapore dollars or a call on Singapore dollars?

b. What is Cece's breakeven price on the option purchased in part (a)?
c. Using your answer from part (a), what is Cece's gross profit and net profit (including premium) if the spot rate at the
end of 90 days is indeed \$0.7000/S\$?
d. Using your answer from part (a), what is Cece's gross profit and net profit (including premium) if the spot rate at the
end of 90 days is \$0.8000/S\$?

## Option choices on the Singapore dollar: Call on S\$ Put on S\$

Strike price (US\$/Singapore dollar) \$0.6500 \$0.6500

Assumptions Values
Current spot rate (US\$/Singapore dollar) \$0.6000
Days to maturity 90
Expected spot rate in 90 days (US\$/Singapore dollar) \$0.7000

## a. Should Cece buy a put on Singapore dollars or a call on Singapore dollars?

Since Cece expects the Singapore dollar to appreciate versus the US dollar, she should buy a call on Singapore dollars.
This gives her the right to BUY Singapore dollars at a future date at \$0.65 each, and then immediately resell them in the
open market at \$0.70 each for a profit. (If her expectation of the future spot rate proves correct.)

## b. What is Cece's breakeven price on the option purchased in part a)?

Per S\$
Strike price \$0.65000
Note this does not include any interest cost on the premium. Plus premium \$0.00046
Breakeven \$0.65046

c. What is Cece's gross profit and net profit (including premium) if the ending spot rate is \$0.70/S\$?

## Gross profit Net profit

(US\$/S\$) (US\$/S\$)
Spot rate \$0.70000 \$0.70000
Less strike price (\$0.65000) (\$0.65000)
Profit \$0.05000 \$0.04954

d. What is Cece's gross profit and net profit (including premium) if the ending spot rate is \$0.80/S\$?

## Gross profit Net profit

(US\$/S\$) (US\$/S\$)
Spot rate \$0.80000 \$0.80000
Less strike price (\$0.65000) (\$0.65000)
Profit \$0.15000 \$0.14954
Problem 7.4 Kapinsky Capital (A)

Christoph Hoffeman trades currency for Kapinsky Capital of Geneva. Christoph has \$10 million to begin with, and he must
state all profits at the end of any speculation in U.S. dollars. The spot rate on the euro is \$1.3358/€, while the 30-day forward
rate is \$1.3350/€.

a. If Christoph believes the euro will continue to rise in value against the U.S. dollar, so that he expects the spot rate to be
\$1.3600/€ at the end of 30 days, what should he do?

b. If Christoph believes the euro will depreciate in value against the U.S. dollar, so that he expects the spot rate to be
\$1.2800/€ at the end of 30 days, what should he do?

a. b.
Assumptions Values Values
Initial investment (funds available) \$10,000,000 \$10,000,000
Current spot rate (US\$/€) \$1.3358 \$1.3358
30-day forward rate (US\$/€) \$1.3350 \$1.3350
Expected spot rate in 30 days (US\$/€) \$1.3600 \$1.2800

## Strategy for Part a):

One of the more interesting dimensions of speculating in the forward market, is that if the speculator has access to the forward
market (bank lines or relationships when working on behalf of an established firm), many forward speculation strategies
require no actual cash flow position up-front. In this case, Christoph believes the dollar will be trading at \$1.36/€ in the open
market at the end of 30 days, but he has the ability to buy or sell dollars at a forward rate of \$1.3350/€. He should therefore
buy euros forward 30 days (requires no actual cash flow up-front), and at the end of 30 days take delivery of those euros and
sell in the spot market at the higher dollar rate for profit.

## Initial investment principle \$10,000,000.00

30 day forward rate (US\$/€) \$1.3350
Euros bought forward (Investment / forward rate) € 7,490,636.70
Spot rate in open market at end of 30 days (US\$/€) \$1.3600
US\$ proceeds (euros bought forward exchanged to US\$ spot) \$10,187,265.92
Profit in US\$ \$187,265.92

## Strategy for Part b):

Again, a profitable strategy can be executed without any actual cash flow changing hands at the beginning of the period. Since
Christoph believes that the dollar will strengthen to \$1.28 in 30 days, he should sell euros forward now at the higher dollar
rate, wait 30 days and buy the euros needed on the open market at \$1.28, and immediately then use those euros to fulfill his
forward contract to sell euros for dollars at \$1.3350. For a profit.

## Investment funds needed in 30 days \$10,000,000.00

Spot rate in open market at end of 30 days \$1.2800
Euros bought in open market in 30 days (Investment / spot rate) € 7,812,500.00

Stefan had sold these euros forward at the start of the 30 day period.
30 day forward rate (US\$/€) \$1.3350
US\$ proceeds (euros sold forward into US\$) \$10,429,687.50
Profit in US\$ \$429,687.50
Problem 7.5 Kapinsky Capital Geneva (B)

Christoph Hoffeman of Kapinsky Capital Geneva now believes the Swiss franc will appreciate versus the U.S.
dollar in the coming three-month period. He has \$100,000 to invest. The current spot rate is \$0.5820/SF, the
three-month forward rate is \$0.5640/SF, and he expects the spot rates to reach \$0.6250/SF in three months.

a. Calculate Christoph's expected profit assuming a pure spot market speculation strategy.
b. Calculate Christoph's expected profit assuming he buys or sells SF three months forward.

a. b.
Assumptions Values Values
Initial investment (funds available) \$100,000 \$100,000
Current spot rate (US\$/Swiss franc) \$0.5820 \$0.5820
Six-month forward rate (US\$/Swiss franc) \$0.5640 \$0.5640
Expected spot rate in six months (US\$/Swiss franc) \$0.6250 \$0.6250

## Strategy for Part a:

1. Use the \$100,000 today to buy SF at spot rate SFr. 171,821.31
2. Hold the SF indefinitely.
3. At the end of six months, convert SF at expected rate \$0.6250
4. Yielding expected dollar revenues of \$107,388.32
5. Realize profit (revenues less \$100,000 initial invest) \$7,388.32

## Strategy for Part b:

1. Buy SF forward six months (no cash outlay required)
2. Fulfill the six months forward in six months SFr. 177,304.96
cost in US\$ (\$100,000.00)
3. Convert the SF into US\$ at expected spot rate \$110,815.60
4. Realize profit \$10,815.60
Problem 7.6 Peleh's Puts

Peleh writes a put option on the Australian dollar (A\$) with a strike price of \$0.9100/A\$ at a premium of \$0.0245/A\$ and with an expiration date six months from now. The
option is for A\$100,000. What is Peleh’s profit or loss at maturity if the ending spot rates are \$0.8500/A\$, \$0.8800/A\$, \$0.9100/A\$, \$0.9400/A\$, and \$0.9700/A\$?

a) b) c) d) e)
Assumptions Values Values Values Values Values
Notional principal (AUD) 100,000 100,000 100,000 100,000 100,000
Maturity (days) 180 180 180 180 180
Strike price (USD/AUD) \$0.910000 \$0.910000 \$0.910000 \$0.910000 \$0.910000
Premium (USD/AUD) \$0.024500 \$0.024500 \$0.024500 \$0.024500 \$0.024500

## Ending spot rate (USD/AUD) 0.85 0.88 0.91 0.94 0.97

in USD/AUD \$1.176471 \$1.136364 \$1.098901 \$1.063830 \$1.030928

## Option premium (USD) 2450.00 2450.00 2450.00 2450.00 2450.00

Less put payoff (USD) \$6,000.00 \$3,000.00 \$0.00 \$0.00 \$0.00
Net profit/loss (USD) -3550.00 -550.00 2450.00 2450.00 2450.00
Problem 7.7 Chavez S.A.

## Chavez S.A., a Venezuelan company, wishes to borrow \$10,000,000 for 18

weeks. Potential lenders in New York, Switzerland, and London using,
respectively, international, Swiss (Eurobond), and British definitions of interest
(day count conventions) quote rates, respectively, 8.25%, 8.30%, and 8.35% per
annum. From which source should Chavez borrow?

Assumptions Values
Quantum of loan 10,000,000
Tenure of loan (weeks) 18

## Country U.S. Switzerland U.K.

Practice International Swiss British
Day in period Actual 30 Actual
Days in year 360 360 365
Interest rate 8.25% 8.30% 8.35%

## Days used 126 126 126

Interest payment 288,750.00 290,500.00 288,246.58

## Chavez should borrow from the London lender.

Problem 7.8 Cachita Haynes at Vatic Capital

Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her latest speculative
position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen.
The current spot rate is ¥120.00/\$. She must choose between the following 90-day options on the Japanese
yen:

Put on yen ¥125/\$ \$0.00003/S\$
Call on yen ¥125/\$ \$0.00046/S\$

## a. Should Cachita buy a put on yen or a call on yen?

b. What is Cachita's breakeven price on the option purchased in part (a)?
c. Using your answer from part (a), what is Cachita's gross profit and net profit (including premium) if the
spot rate at the end of 90 days is ¥140/\$?

Assumptions Values
Current spot rate (Japanese yen/US\$) 120.00
in US\$/yen \$0.00833
Maturity of option (days) 90
Expected ending spot rate in 90 days (yen/\$) 140.00
in US\$/yen \$0.00714

## Call on yen Put on yen

Strike price (yen/US\$) 125.00 125.00
in US\$/yen \$0.00800 \$0.00800

## a. Should she buy a call on yen or a put on yen?

Cachita should buy a put on yen to profit from the rise of the dollar (the fall of the yen).

b. What is Cachita's break even price on her option of choice in part a)?
In 90 days, exercises the put, receiving US\$.
in yen/\$
Strike price \$0.00800 125.00
Breakeven \$0.00797 125.47

c. What is Cachita's gross profit and net profit if the end spot rate is 140 yen/\$?

## Gross profit Net profit

(US\$/yen) (US\$/yen)
Strike price \$0.00800 \$0.00800
Less spot rate -\$0.00714 -\$0.00714
Profit \$0.00086 \$0.00083
Problem 7.9 Calling All Profits

Consider an American call option on New Zealand dollars (NZ\$) with a strike price of \$0.8100/NZ\$ traded at a premium of \$0.0192 per NZ\$ and with an expiration date three months from now.
The option is for NZ\$100,000.
a. Suppose that you have bought such a call option. Plot your profit or loss on a graph should you exercise before maturity at a time when the NZ\$ is traded spot at between \$0.7000/NZ\$ and
\$0.9200/NZ\$. Find the break-even exchange rate.
b. Repeat (a) if you have sold such a call option.

Assumptions Values
Notional principal (NZD) NZD 100,000
Strike price (USD/NZD) USD 0.8100

## (a) Break-even rate

Spot rate (USD/NZD) 0.7000 0.8100 0.8292 0.9200

## Call payoff (USD) 0.00 0.00 1,920.00 11,000.00

Less option premium (USD) 1,920.00 1,920.00 1,920.00 1,920.00
Net profit/loss (USD) -1,920.00 -1,920.00 0.00 9,080.00

## Net profit/loss (USD) for call buyer

10000

8000

6000

4000

2000

0
0.7 0.75 0.8 0.85 0.9
-2000

## (b) Break-even rate

Spot rate (USD/NZD) 0.7000 0.8100 0.8292 0.9200

## Option premium (USD) 1,920.00 1,920.00 1,920.00 1,920.00

Less call payoff (USD) 0.00 0.00 1,920.00 11,000.00
Net profit/loss (USD) 1,920.00 1,920.00 0.00 -9,080.00

## Net profit/loss (USD) for call writter

2000

0
0.7 0.75 0.8 0.85 0.9
-2000

-4000

-6000

-8000

-10000
Problem 7.10 Arthur Doyle at Baker Street

Arthur Doyle is a currency trader for Baker Street, a private investment house in London. Baker Street’s clients are a collection of
wealthy private investors who, with a minimum stake of £250,000 each, wish to speculate on the movement of currencies. The
investors expect annual returns in excess of 25%. Although officed in London, all accounts and expectations are based in U.S. dollars.
Arthur is convinced that the British pound will slide significantly -- possibly to \$1.3200/£ -- in the coming 30 to 60 days. The
current spot rate is \$1.4260/£. Arthur wishes to buy a put on pounds which will yield the 25% return expected by his investors. Which
of the following put options would you recommend he purchase. Prove your choice is the preferable combination of strike price,

\$1.36/£ 30 days \$0.00081/£
\$1.34/£ 30 days \$0.00021/£
\$1.32/£ 30 days \$0.00004/£
\$1.36/£ 60 days \$0.00333/£
\$1.34/£ 60 days \$0.00150/£
\$1.32/£ 60 days \$0.00060/£

Assumptions Values
Current spot rate (US\$/£) \$1.4260
Expected endings spot rate in 30 to 60 days (US\$/£) \$1.3200
Potential investment principal per person (£) £250,000.00

## Put options on pounds Put #1 Put #2 Put #3

Strike price (US\$/£) \$1.36 \$1.34 \$1.32
Maturity (days) 30 30 30

## Put options on pounds Put #4 Put #5 Put #6

Strike price (US\$/£) \$1.36 \$1.34 \$1.32
Maturity (days) 60 60 60

## Issues for Sydney to consider:

1. Because his expectation is for "30 to 60 days" he should confine his choices to the 60 day options to be sure and capture
the timing of the exchange rate change. (We have no explicit idea of why he believes this specific timing.)

## 2. The choice of which strike price is an interesting debate.

* The lower the strike price (1.34 or 1.32), the cheaper the option price.
* The reason they are cheaper is that, statistically speaking, they are increasingly less likely to end up in the money.
* The choice, given that all the options are relatively "cheap," is to pick the strike price which will yield the required return.
* The \$1.32 strike price is too far 'down,' given that Sydney only expects the pound to fall to about \$1.32.

## Put #4 Put #5 Put #6

Net profit Net profit Net profit
Strike price \$1.36000 \$1.34000 \$1.32000
Less expected spot rate (1.32000) (1.32000) (1.32000)
Profit \$0.03667 \$0.01850 (\$0.00060)

## If Sydney invested an individual's principal purely

in this specific option, they would purchase an
option of the following notional principal (£): £75,075,075.08 £166,666,666.67 £416,666,666.67

## Expected profit, in total (profit rate x notional): \$2,753,003.00 \$3,083,333.33 -\$250,000.00

Initial investment at current spot rate \$356,500.00 \$356,500.00 \$356,500.00
Return on Investment (ROI) 772% 865% -70%
Risk: They could lose it all (full premium)
Problem 7.11 Calandra Panagakos at CIBC
Calandra Panagakos works for CIBC Currency Funds in Toronto. Calandra is something of a contrarian -- as opposed
to most of the forecasts, she believes the Canadian dollar (C\$) will appreciate versus the U.S. dollar over the coming
90 days. The current spot rate is \$0.6750/C\$. Calandra may choose between the following options on the Canadian
dollar:

Put on C\$ \$0.7000 \$0.00003/S\$
Call on C\$ \$0.7000 \$0.00049/S\$

b. What is Calandra's breakeven price on the option purchased in part (a)?
c. Using your answer from part (a), what is Calandra's gross profit and net profit (including premium) if the spot rate
at the end of 90 days is indeed \$0.7600?
d. Using your answer from part (a), what is Calandra's gross profit and net profit (including premium) if the spot rate
at the end of 90 days is \$0.8250?

Assumptions Values
Current spot rate (US\$/Canadian dollar) \$0.6750
Days to maturity 90

## Option choices on the Canadian dollar: Call option Put option

Strike price (US\$/Canadian dollar) \$0.7000 \$0.7000

## a) Which option should Giri buy?

Since Giri expects the Canadian dollar to appreciate versus the US dollar, he should buy a call on Canadian dollars.

## Strike price \$0.7000

Breakeven \$0.7005

c) What is Giri's gross profit and net profit (including premium) if he ending spot rate is \$0.7600/C\$?

## Gross profit Net profit

(US\$/C\$) (US\$/C\$)
Spot rate \$0.7600 \$0.7600
Less strike price (0.7000) (0.7000)
Profit \$0.0600 \$0.05951

d) What is Giri's gross profit and net profit (including premium) if the ending spot rate is \$0.8250/C\$?

## Gross profit Net profit

(US\$/C\$) (US\$/C\$)
Spot rate \$0.8250 \$0.8250
Less strike price (0.7000) (0.7000)
Profit \$0.1250 \$0.12451
Problem 7.12 U.S. dollar/Euro

## Pricing Currency Options on the Euro

A U.S.-based firm wishing to buy A European firm wishing to buy
or sell euros (the foreign currency) or sell dollars (the foreign currency)

## Variable Value Variable Value

Spot rate (domestic/foreign) S0 \$1.2480 S0 € 0.8013
Strike rate (domestic/foreign) X \$1.2500 X € 0.8000
Domestic interest rate (% p.a.) rd 1.453% rd 2.187%
Foreign interest rate (% p.a.) rf 2.187% rf 1.453%
Time (years, 365 days) T 1.000 T 1.000
Days equivalent 365.00 365.00
Volatility (% p.a.) s 12.000% s 12.000%

## Call option premium (per unit fc) c \$0.0534 c € 0.0412

Put option premium (per unit fc) p \$0.0643 p € 0.0342
(European pricing)

## Call option premium (%) c 4.28% c 5.15%

Put option premium (%) p 5.15% p 4.27%

When the volatility is increased to 12.000% from 10.500%, the premium on the call option on euros rises to \$0.0412/€, or 5.15%.
Problem 7.13 U.S. Dollar/Japanese Yen

## Pricing Currency Options on the Japanese yen

A Japanese firm wishing to buy A U.S.-based firm wishing to buy
or sell dollars (the foreign currency) or sell yen (the foreign currency)

## Variable Value Variable Value

Spot rate (domestic/foreign) S0 JPY 105.64 S0 \$0.0095
Strike rate (domestic/foreign) X JPY 100.00 X \$0.0100
Domestic interest rate (% p.a.) rd 0.089% rd 1.453%
Foreign interest rate (% p.a.) rf 1.453% rf 0.089%
Time (years, 365 days) T 1.000 T 1.000
Days equivalent 365.00 365.00
Volatility (% p.a.) s 12.000% s 12.000%

## Call option premium (per unit fc) c JPY 7.27 c \$0.0003

Put option premium (per unit fc) p JPY 3.06 p \$0.0007
(European pricing)

## Call option premium (%) c 6.88% c 3.06%

Put option premium (%) p 2.90% p 7.27%

A Japanese firm wishing to sell U.S. dollars would need to purchase a put on dollars. The put option premium listed above is JPY3.06/\$.

## Put option premium (JPY/US\$) JPY 3.06

Notional principal (US\$) \$750,000
Total cost (JPY) JPY 2,297,243
Problem 7.14 Euro/Japanese Yen

## Pricing Currency Options on the Euro/Yen Crossrate

A Japanese firm wishing to buy A European firm wishing to buy
or sell euros (the foreign currency) or sell yen (the foreign currency)

## Variable Value Variable Value

Spot rate (domestic/foreign) S0 JPY 133.89 S0 € 0.0072
Strike rate (domestic/foreign) X JPY 136.00 X € 0.0074
Domestic interest rate (% p.a.) rd 0.088% rd 2.187%
Foreign interest rate (% p.a.) rf 2.187% rf 0.088%
Time (years, 365 days) T 0.247 T 0.247
Days equivalent 90.00 90.00
Volatility (% p.a.) s 10.000% s 10.000%

## Call option premium (per unit fc) c JPY 1.50 c € 0.0001

Put option premium (per unit fc) p JPY 4.30 p € 0.0002
(European pricing)

## Call option premium (%) c 1.12% c 1.30%

Put option premium (%) p 3.21% p 2.90%

A European-based firm like Legrand (France) would need to purchase a put option on the Japanese yen. The company wishes a strike rate of 0.0072
euro for each yen sold (the strike rate) and a 90-day maturity. Note that the "Time" must be entered as the fraction of a 365 day year, in this case, 90/365
= 0.247.

## Put option premium (euro/JPY) € 0.0002

Notional principal (JPY) JPY 10,400,000
Total cost (euro) € 2,167.90
Problem 7.15 U.S. Dollar/British Pound

## Pricing Currency Options on the British pound

A U.S.-based firm wishing to buy A British firm wishing to buy
or sell pounds (the foreign currency) or sell dollars (the foreign currency)

## Variable Value Variable Value

Spot rate (domestic/foreign) S0 \$1.8674 S0 £0.5355
Strike rate (domestic/foreign) X \$1.8000 X £0.5556
Domestic interest rate (% p.a.) rd 1.453% rd 4.525%
Foreign interest rate (% p.a.) rf 4.525% rf 1.453%
Time (years, 365 days) T 0.493 T 0.493
Days equivalent 180.00 180.00
Volatility (% p.a.) s 9.400% s 9.400%

## Call option premium (per unit fc) c \$0.0696 c £0.0091

Put option premium (per unit fc) p \$0.0306 p £0.0207
(European pricing)

## Call option premium (%) c 3.73% c 1.70%

Put option premium (%) p 1.64% p 3.87%

Call option premiums for a U.S.-based firm buying call options on the British pound:

## 180-day maturity (\$/pound) \$0.0696

90-day maturity (\$/pound) \$0.0669
Difference (\$/pound) \$0.0027

Problem 7.16 Euro/British Pound

## Pricing Currency Options on the British pound/Euro Crossrate

A European firm wishing to buy A British firm wishing to buy
or sell pounds (the foreign currency) or sell euros (the foreign currency)

## Variable Value Variable Value

Spot rate (domestic/foreign) S0 € 1.4730 S0 £0.6789
Strike rate (domestic/foreign) X € 1.5000 X £0.6667
Domestic interest rate (% p.a.) rd 4.000% rd 4.160%
Foreign interest rate (% p.a.) rf 4.160% rf 4.000%
Time (years, 365 days) T 0.247 T 0.247
Days equivalent 90.00 90.00
Volatility (% p.a.) s 11.400% s 11.400%

## Call option premium (per unit fc) c € 0.0213 c £0.0220

Put option premium (per unit fc) p € 0.0487 p £0.0097
(European pricing)

## Call option premium (%) c 1.45% c 3.24%

Put option premium (%) p 3.30% p 1.42%

When the euro's interest rate rises from 2.072% to 4.000%, the call option premium on British pounds rises:

## Call option on pounds when euro interest is 4.000% € 0.0213

Call option on pounds when euro interest is 2.072% € 0.0189
Change, an increase in the premium € 0.0213