The market price of a European call is R3.00 and its price given by Black-Scholes- Merton model with a volatility of 30% is R3.50. The price given by this Black-Scholes- Merton model for a European put option with the same strike price, volatility and time to maturity is R1.00. What should the market price of the put option be? Explain the reasons for your answer.

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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.