These options are traded in the market: call option with an Exercise (Strike)
Price of 1.15 $/€ and premium (option cost) of 0.03 $ per euro.
(a) If the Spot exchange rate is 1.17 $/€, is the option ITM, ATM or OTM?
(b) Calculate Intrinsec value and Time value of the option.
(c) If put options are traded with same Exercise Price at same cost of 0.03 $ per
euro and Fwd for the same maturity is traded at 1.17 $/€, how can an astute trade
arbitrage? Explain.
(d) Calculate Intrinsec value and Time value of the put option mentioned above.