Question

1. Define an Option
2. What is Strike Price?
3. What is meant by option’s intrinsic value?
4. Define Spot Rate.
5. What is a derivative?
6. What is foreign currency transaction?
7. Define “foreign currency risk exposure.”
8. Define “asset exposure.”
9. State how derivatives and changes in their values are reported under US GAAP and IFRS.
10. What is a forward contract, and how discounts and premiums on it are treated under US GAAP and IFRS?

Answer 1

Question - (1) - Define an Option?

Answer -

Options are the financial instruments that are derivatives based on the value of underlying securities.

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Question - (2) - What is Strike Price?

Answer -

The strike price is the specified price at which an option contract can be exercised.

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Question - (3) - What is meant by option’s intrinsic value?

Answer -

Option’s intrinsic value can be defined as the extent to which the option is in-the-money.

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Question - (4) - Define Spot Rate?

Answer -

The spot rate is the price quoted for immediate settlement on a commodity, a security or a currency.