Foreign exchange derivatives
Let S=$0.01/ Yen be the spot exchange rate, let the U.S. interest rate rd=1%, aid and let the Japanese interest rate rf=4%. Consider a call option for delivery of 1,000 Japanese Yen expiring in six months with strike price K=0.01$/Yen and with spot price volatility of 15%. Using the formulas where In(F/ K) + (σ2/2)T di and S.
1. What is the value of d1: (a) -0088: (b) 0.325 (c) 0.243; (d) 0.796 9.
2. What is the value of d2: (a) -0.356: (b) -0.112: (c) 0.194: (d) 0.115
Assume that N(di) is 0.4648 and that N(d2) is 0.4229.
3. What is the value of the call to buy 1,000 Yen: (a) 0.01; (b) 0:21: (c) 0.14 (d) 0.35