Step 1: The lesion is an annular (ring-shaped) plaque on the glabrous skin of the arm, with a scaly, clearing centre and a red, advancing, slightly raised border. This is classic ringworm of the body, Tinea corporis.
Step 2: The dermatophyte lives only in dead keratinised tissue, but its enzymes and antigens diffuse inward to cause the erythema, vesicles and itching at the edge. Growth is centrifugal, so active hyphae sit at the periphery, which is the best site to scrape for diagnosis.
Step 3: The other options are defined by site: Tinea cruris is the groin, Tinea manus the hands and fingers, and Tinea capitis the scalp and hair. The arm makes Tinea corporis correct. Ref: Jawetz Medical Microbiology, 27e, p.668.