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Morning Mr Moffat,
I’d really like you simplify this concept for me as I keep getting stumped,
When do we really get buy or put options?
And what does it it mean to hedge against a weakening or strengthening currencyFor interest rate, it’s a bit clearer, when borrowing we put and depositing we call
Options give you the right to buy (call options) or to sell (put options) a currency on a future date at a fixed rate.
You do not have to exercise the option – if the change rate has moved in our favour then we do not exercise the option and convert at whatever spot happens to be, but if the exchange rate moves against us then we can exercise the option and therefore limit the ‘worst’ that can happen.
If a currency is weakening against another currency it means that it is worth less – so if we are receiving payment in that currency we will lose as the currency weakens.
If a currency is strengthening and we are having pay money it that currency then it will cost us more in the future.Have you watched my free lectures on foreign exchange risk management, because I explain all the hedging techniques in detail.
Thank you Mr Moffat,
I did watch the lectures, but unfortunately did not review the notes on a timely basis, so my concepts have become hazy, but I’ve done done a full summary tonight and I’m done with my initial practice phase,
So going to be doing 1 question each on each of the core topics everyday( advanced appraisal, valuation, risk mgmt, options & reconstruction all the way till the exam day hopefully this keeps me sharp come what may, this seem good?
Appreciate your feedback
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