Question 1

Where an option is out of the money

Accepted Answer

When an option is out of the money, it means that exercising the option would not be profitable for the holder. In such cases, the option is often not exercised, and the seller (or writer) of the option retains the premium paid by the buyer as profit. The premium is not refunded to the buyer, and the buyer can still choose to exercise the option, although it would result in a loss compared to not exercising.

Question 2

Banks permitted to run option book is required to fulfill the condition of

Accepted Answer

Banks permitted to run option books are required to fulfill all the conditions listed: continuous profit for at least three years, a minimum Capital to Risk-weighted Assets Ratio (CRAR) of 9%, and a minimum net worth of Rs.200 crores.

Quiz 1: Foreign Currency Accounts, Exchange Rates, and Derivatives: Exploring the World of Foreign Exchange

Where an option is out of the money

Banks permitted to run option book is required to fulfill the condition of