Question
An importer based in India has a large payment to make
in EUR after 2 months. To reduce exchange rate risk, the firm buys a European Call Option with a strike price of ₹91. At maturity, the spot rate is ₹94. What is the result of the option strategy?Solution
A call option gives the right to buy foreign currency at the strike price. Since the spot is ₹94, and the option allows buying at ₹91, the importer exercises it and gains ₹3 per EUR.
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