2009 Essay Q9, option

Why are they taking the spot price to value an option?

Shouldnt they be taking the implied forward (JPY/CAD)?

No , for options you use the spot price but use trhe implied forward rate for forwards. That is just how I have learnt it

option and forward contract are different things.

option payoff to the long:


great thanks

just thought that for european style option they should be taking forward priceā€¦ guess not