Uncertainty and Option Premiums
Response to the following problem:
This morning, a Canadian dollar call option contract has a $.71 strike price, a premium of $.02, and expiration date of 1 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 $.71. Would the premium of the call option contract be higher than, lower than, or equal to $.02 this afternoon? Explain.