Which of the following is true when a European currency option is valued using forward exchange rates?
A. It is not necessary to know the domestic interest rate or the spot exchange rate
B. It is not necessary to know either the foreign or domestic interest rate
C. It is necessary to know the difference between the foreign and domestic interest rates but not the rates themselves
D. It is not necessary to know the foreign interest rate or the spot exchange rate
D
The forward exchange rate contains all the information necessary about the foreign risk-free interest rate and the spot exchange rate. It is still necessary to know the domestic risk-free interest rate.
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