Skip to content

CA Final · Advanced Financial Management · Foreign Exchange Exposure and Risk Management

Tata Components (an Indian firm) will receive USD 200,000 in three months and buys a USD put option (rupee call) with strike Rs 83.00 per USD, paying a premium of Rs 1.20 per USD. If the spot rate at expiry is Rs 80.50, what is the net rupee realisation (ignoring interest on premium)?

The put is exercised because spot Rs 80.50 is below the Rs 83 strike, giving Rs 16,600,000. Deducting the premium of Rs 240,000 (200,000 x 1.20) leaves a net realisation of Rs 16,360,000.

  1. ARs 16,360,000Correct
  2. BRs 16,600,000
  3. CRs 16,100,000
  4. DRs 16,840,000

Explanation

Spot 80.50 is below strike 83.00, so the put is exercised and USD is sold at 83.00: 200,000 x 83 = Rs 16,600,000. Premium = 200,000 x 1.20 = Rs 240,000. Net = 16,600,000 - 240,000 = Rs 16,360,000. Rs 16,600,000 ignores the premium; Rs 16,100,000 wrongly uses spot without the option.

Did you get it right without looking?

One question tells you little. A timed set on Foreign Exchange Exposure and Risk Management shows your real accuracy, how long you take and where you lose marks.

Practise Foreign Exchange Exposure and Risk ManagementFree diagnostic mock

More Foreign Exchange Exposure and Risk Management questions