Suppose the current spot rate for the swiss franc is $0.8531. the intrinsic value of an sf 50,000 call option with an exercise price of $0.8195 is

The intrinsic value of an Sf 50,000 call option is $1,680.

Explanation:

As it costs $42,655 to buy SF 50,000 ( which is calculated as spot rate * SF 50,000 = $0.8531 * 50,000) at the spot rate, while it only costs call option holders $40,975 to buy SF 50,000 ( which is calculated as exercised rate * SF50,000 = $0.8195 * 50,000), the intrinsic value of the call option is calculated as:

(Spot rate - Exercised rate) * 50,000 = ( 0.8531 - 0.8195) * 50,000 = $1,680; which is also the difference ( or intrinsic value of call option) between buying SF50,000 at spot rate and buying SF50,000 through exercising call option ($42,655 - $40,975).

So, the answer is $1,680.

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