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    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?
    A The option expires worthless Correct Answer Incorrect Answer
    B The importer makes a profit of ₹3 per EUR Correct Answer Incorrect Answer
    C The exporter loses ₹3 Correct Answer Incorrect Answer
    D Importer pays at market rate Correct Answer Incorrect Answer
    E Option is exercised and importer gains ₹3 Correct Answer Incorrect Answer

    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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