Home / Questions / If the cost of funds to the bank is also assumed to be 10 percent, what is the value of t
If the cost of funds to the bank is also assumed to be 10 percent, what is the value of this option built into the agreement if only two possible exchange rates are expected at the end of the year, €0.8467/$ or €0.7499/$, with equal probability?
How would your answer differ, if the probability of the exchange rate being €0.8467/$ is 70 percent and that of €0.7499/$ is 30 percent?
Does the currency option have more or less value as the volatility of the exchange rate increases?
Nov 25 2019 Read more Less More
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