Final answer:
The price change sensitivities in the BSM equation are called the "Greeks," which describe how various factors affect the price of options. They include Delta, Gamma, Theta, Vega, and Rho. Likewise, a change in currency values, such as the euro's increase against the Canadian dollar, can affect the cost and value of investments in those currencies.
Step-by-step explanation:
The price change sensitivities of each of the variables in the BSM equation are known as the "Greeks". These sensitivities are financial measures used to determine how different factors affect the price of options. The options are based on the Black-Scholes-Merton model or BSM, which is used to value options and other derivatives. The correct answer to the student's question is D. Greeks. Each Greek measures the sensitivity of the option's price to a different parameter: Delta measures the rate of change of the option price with respect to changes in the underlying asset's price, Gamma deals with the rate of change in Delta over the underlying asset price, Theta shows the rate of change of the option price with respect to the decay of time, Vega measures the sensitivity to changes in the underlying asset's volatility, and Rho assesses the change in option price relative to the interest rate.
In the context of currencies, if the euro strengthens against the Canadian dollar, this implies that the purchasing power of the euro increases, allowing it to buy more Canadian dollars. For a Greek bank holding Canadian bonds, this currency shift can lead to a decrease in the purchasing cost when converted back to euros, thereby affecting the yield and valuation of those bonds.