Financial Risk Manager Part 2

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Explanation:

According to the put-call parity formula for currencies: $P = C - S_0 e^{-r_f T} + K e^{-r_d T}$

Where:

$S_0 = \`$ 1.80`$
$K = \`$ 1.70`$
$C = \`$ 0.13`5$
$T = 1 \text{ year}$
$r_d = 5\% = 0.05$ (domestic US rate)
$r_f = 8\% = 0.08$ (foreign rate)

Now, plugging the values into the formula: $P = 0.135 - 1.80 \times e^{-0.08} + 1.70 \times e^{-0.05}$ $P = 0.135 - 1.80 \times 0.923116 + 1.70 \times 0.951229$ $P = 0.135 - 1.66161 + 1.61709$ $P = 0.09048 \approx \`$ 0.09`05$

Therefore, the price of the European put option is `$0.09`05.

Explanation:

According to the put-call parity formula for currencies: $P = C - S_0 e^{-r_f T} + K e^{-r_d T}$

Where:

$S_0 = \`$ 1.80`$
$K = \`$ 1.70`$
$C = \`$ 0.13`5$
$T = 1 \text{ year}$
$r_d = 5\% = 0.05$ (domestic US rate)
$r_f = 8\% = 0.08$ (foreign rate)

Therefore, the price of the European put option is `$0.09`05.

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Q.15 A foreign currency is valued at `$1.80`. The foreign currency has a European call option with a market price of `$0.13`5, strike price of `$1.70`, and exactly one year to maturity. In the US, the risk-free interest rate is 5% per annum and 8% per annum in the foreign country. Assuming no arbitrage, determine the price of a European put option with a strike price of `$1.70` and 1-year to maturity for the foreign currency. (Tip: Let the yield on the underlying stock be equal to the foreign risk-free rate.)

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Last updated: July 5, 2026 at 07:20

$0.254

$0.153

$2.5608

$0.0905