Uncertainty and Option Premiums This morning, a Canadian dollar call option contract. has a $0.71 strike price, a premium of $0.02, and an expiration date of one month from now. This afternoon, news about international economic conditions increased the level of uncertainty surrounding the Canadian dollar. However, the spot rate of the Canadian dollar was still $0.71. Would the premium of the call option contract be higher than, lower than, or equal to $0.02 this afternoon? Explain.

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 39QA
Textbook Problem

Uncertainty and Option Premiums This morning, a Canadian dollar call option contract. has a $0.71 strike price, a premium of $0.02, and an expiration date of one month from now. This afternoon, news about international economic conditions increased the level of uncertainty surrounding the Canadian dollar. However, the spot rate of the Canadian dollar was still $0.71. Would the premium of the call option contract be higher than, lower than, or equal to $0.02 this afternoon? Explain.

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