Pricing of Currency Options Review the logic regarding how currency options are priced. Consider a speculator who plans to purchase currency options for the option at the money on whatever currency has the lowest premium. He also plans to sell currency options for the option at the money on whatever currency has the highest premium. Another speculator uses a strategy of purchasing call options on Australian dollars at the money whenever the premium is relatively low (compared to the historical premiums that existed for this type of option). She also sells call options at the money on Australian dollars at the money. Write a short essay describing your opinion about the likely success of these strategies.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 5, Problem 1CT
Textbook Problem

Pricing of Currency Options Review the logic regarding how currency options are priced. Consider a speculator who plans to purchase currency options for the option at the money on whatever currency has the lowest premium. He also plans to sell currency options for the option at the money on whatever currency has the highest premium. Another speculator uses a strategy of purchasing call options on Australian dollars at the money whenever the premium is relatively low (compared to the historical premiums that existed for this type of option). She also sells call options at the money on Australian dollars at the money. Write a short essay describing your opinion about the likely success of these strategies.

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