Suppose that the current USD/EUR FX-rate is S = USD1.18/EUR, the i(US,1year) = 4%, and i(EUR,1year) = 1%.
1. Calculate the lower bound for the price of an European call option with strike price equal to USD 1.2/EUR and 1 year time to maturity.
2. Calculate the highest lower bound for the price of an American call option with strike price equal to USD 1.2/EUR and 1 year time to maturity.
3. Suppose that the European call is worth USD 0.1233. What is the value of the European put with the same strike price and maturity date?