B.2.1 Example 1

On 01-Jun-2003, Options Bank buys a call option on 10,000 USD against INR with a strike price of 50 INR. Maturity date – 31-Dec-2003. Premium paid – 100 USD.

Parameters of the deal:

Table B-56 Example 1

Contract Type	Value
Contract Amount	10,000
Contract Currency	USD
Counter Currency	INR
Option premium	100 USD
Strike price	50 INR/USD
Current Spot Rate	48 INR/USD
Option Style	Binary
Expiration style	American
Barrier	None
Fixed Amount to be paid	500
Fixed Amount Currency	EUR
Earliest exercise date	01-Oct-2003

If at any time during 01-Oct-2003 and 31-Dec-2003, the spot rate touches or crosses 50 INR/USD, the seller of the option becomes liable to pay a fixed amount of 500 EUR to Options Bank. This example also illustrates that the settlement does not have to be in the contract currency or the counter currency. It can be in a pre-determined currency, which are different from both.