Question

Which of the following statements about foreign exchange options is necessarily correct (mark all that apply)?...

Which of the following statements about foreign exchange options is necessarily correct (mark all that apply)?

Group of answer choices

The longer the time to maturity, the lower the value of a currency put option, other things being equal.

The longer the time to maturity, the higher the value of a currency put option, other things being equal.

The stronger the spot exchange rate relative to the exercise price, the greater the value of a currency put option, other things being equal.

The stronger the spot exchange rate relative to the exercise price, the greater the value of a currency call option, other things being equal.

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Answer #1

The correct answers are options B and D.

  • B. The longer the time to maturity, the higher the value of a currency put option, other things being equal.
  • D. The stronger the spot exchange rate relative to the exercise price, the greater the value of a currency call option, other things being equal.

Option A is incorrect because the value of any option is higher if the time to maturity is higher.

Option C is incorrect because the value of a currency put option will be lower if the spot exchange rate is stronger than the exercise price.

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