The price of a commodity is £45. Its volatility is 20% and the risk-free rate of interest is 3% per annum with continuous compounding (for all maturities). Use a three-step binomial tree to value (i) a nine-month European call option with strike £45 and (ii) a nine-month American put option with strike £48. Up and down movement can be calculated using volatility and expiration date (9 month call option).

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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.