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# An exchange rate is currently 0.8000. The volatility of the exchange rate is quoted as

ISBN: 9780133456318 458

## Solution for problem 20.15 Chapter 20

Options, Futures, and Other Derivatives | 9th Edition

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Problem 20.15

An exchange rate is currently 0.8000. The volatility of the exchange rate is quoted as 12% and interest rates in the two countries are the same. Using the lognormal assumption, estimate the probability that the exchange rate in 3 months will be (a) less than 0.7000, (b) between 0.7000 and 0.7500, (c) between 0.7500 and 0.8000, (d) between 0.8000 and 0.8500, (e) between 0.8500 and 0.9000, and (f ) greater than 0.9000. Based on the volatility smile usually observed in the market for exchange rates, which of these estimates would you expect to be too low and which would you expect to be too high?

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CHAPTER 7: E-COMMERCE WHY MANAGERS MUST UNDERSTAND E-COMMERCE  E-commerce: Involves the exchange of money for goods and services over electronic networks and encompasses many of an organization’s outward-facing processes that touch customers, suppliers, and other business partners such as sales, marketing, order taking, delivery, procurement of...

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