As a treasurer of dollar opt bank . You have sold forward USD to your customers and cover your own USD exposure. Current rates are @ INR 75/usd. However, apprehending volatility in the forex market, you have purchased a call option from a hedge fund of a strike price of INR 80/usd. and paid an upfront option premium of INR 5/usd. This option expires on 30th june 2021. Questions ( assuming the rate prevailing on 30th June 2021 is also INR 75/USD)

a. Are you ITM ,OTM OR ATM ?

b. What course of option should you take and why?

C. What would be your decision if you had purchased a PUT option, instead of a CALL option, at the same price ?

Answer rating: 100% (QA)

SOLUTION a Since the current spot rate is INR 75USD and the str... View the full answer