Windjam

janakisri, different from your opinion again!
I think the ECO answer is right.
Option premium should be decided only by spot rate, both the principle and option price. After serious thinking, I understand that it does not make sense to calculate the principle by strike price because you have no idea whether you are going to strike it or not when you are just about to pay the premium on the option.
The formula to the option premium should be:
UK # Cost of premium= (Principle in USD/ Spot Rate in USD per UK#) * (option price in USD per UK# / Spot Rate in USD per UK#)