For most practical matters, economists assume that A) ...

[PhilipSeeMore]

For most practical matters, economists assume that
 
  A) individuals are risk neutral.
  B) individuals are risk lovers.
  C) individuals are risk averse.
  D) most individuals are risk lovers.
  E) most individuals are risk neutral.

Question 2

Briefly answer the following questions.
 
  (a) What is a foreign currency option? Is there any difference between a European and American option?
   (b) Why might you prefer an option over a futures or forward contract?
   (c) When can a gain be made by the holder of a call option? A put option?

[sarahccccc]

Answer to Question 1

C

Answer to Question 2

(a) The right to buy or sell a designated quantity of a foreign currency at a specified price is called an option. If the option can be used before the expiration date, it is an American option; if only on the expiration date, it is a European option.
(b) Because there is no obligation to buy or sell at a set exchange rate in the case of an option, while there is in futures or forward.
(c) A gain can be made by the holder of a call option any time the exchange rate exceeds the exercise price. Similarly, the holder of a put option will gain if the option is exercised at any rate below the striking price.