2016-FRR Exam Dumps | In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout

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GARP.2016-FRR.v2025-06-21.q161
Question 141

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Question 141/161

In analyzing market option pricing dynamics, a risk manager evaluates option value changes throughout the entire trading day. Which of the following factors would most likely affect foreign exchange option values?
I. Change in the value of the underlying
II. Change in the perception of future volatility
III. Change in interest rates
IV. Passage of time

A. I, II

B. I, II, III

C. II, III

D. I, II, III, IV

Correct Answer: D

The value of foreign exchange options is influenced by several factors, including:
* Change in the value of the underlying (I):This directly affects the option's intrinsic value.
* Change in the perception of future volatility (II):Higher expected volatility increases the option's potential payoff.
* Change in interest rates (III):This affects the cost of carrying positions in the underlying asset.
* Passage of time (IV):This influences the time value of the option. All these factors collectively impact the pricing dynamics of options throughout the trading day.

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