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QUESTION
Suppose the exchange rate is 0.
- Suppose the exchange rate is 0.95 $/€, the euro-denominated continuously compounded interest rate is 4%, the dollar-denominated continuously compounded interest rate is 6%, and the price of a 1-year $0.93-strike European call on the euro is $0.0571. What is the price of a $0.93-strike European put? [Hint: Construct an option portfolio to mimic the payoff of a foreign currency forward contract and then use the forward evaluation to derive the put-call parity relationship.]
