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CA Final · Advanced Financial Management · Risk Management

Tanvi Pharma will receive EUR 100,000 in 3 months. Spot is Rs 90.00/EUR. It buys a 3-month EUR put option with strike Rs 89.50 at a premium of Rs 1.20 per EUR. Ignoring interest cost, if spot at expiry is Rs 87.00, what is the net rupee realisation?

Net realisation is Rs 88,30,000. The put is exercised because spot of Rs 87 is below the Rs 89.50 strike, giving Rs 89.50 per euro, and the Rs 1.20 premium is deducted, leaving Rs 88.30 on EUR 100,000.

  1. ARs 87,00,000
  2. BRs 89,50,000
  3. CRs 88,30,000Correct
  4. DRs 90,70,000

Explanation

Spot 87 is below strike 89.50, so the put is exercised and EUR sold at 89.50. Net per EUR = 89.50 - 1.20 = 88.30. Total = 100,000 x 88.30 = Rs 88,30,000. Rs 89,50,000 ignores the premium; Rs 87,00,000 ignores the option.

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