You observe the price of a European put option that expires in nine months and has a strike price of $45 is $3. The underlying stock price is $49.50. The term structure is flat, with all risk-free interest rates being 8%. a. What is the price of a European call option that expires in nine months and has a strike price of $45?  b. You observe next that the price of the call option (in part (a)) in the market is $9.59. State why an arbitrage opportunity exists and explain how you would take advantage of this opportunity.  (Hint: answer should include an outline general strategy, net cost of strategy at initiation and net profit at expiration using the numbers in the question)

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.