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People, i have trying to explain them this concept, That you always look at the contract currency.
But they just don’t seem to understand. Simply because they have created a trend/patter in their by minds by looking at a those qs in the exam kit which have the contract currency in their HOME currency. And so have crammed the answer’s and steps.
I have tried my best to make them see the logic. But have failed miserably.
Best thing to do now is just to leave them to the way the see fit.
Mission, i don’t think you ever got what i was trying to say.
It’s a put bcz we’re selling the £ to buy the $. And not bcz it’s a payment.
The exam has some tricks up his sleeves. You should know that.
In exam it’s put again, bcz the contract currency is € and we’re selling them to buy the $.(since it’s a receipt).
If you still don’t get it, i told u mock 1 qs 2 available for understanding purposes. But since you don’t like the qs, best of luck.
Mission, NTC has the contract currency in £ home currency. And it clearly also states in the answer it’s a PUT bcz they have to SELL £ and BUY $ !!
How is this not consistent with all that i have been saying?
If i had the option to attach a pic, I’d hav sent u the screen shot !
Okay i will have a look at ntc, but if your concepts are correct, why you do u find mock 1 qs a bad 1 !
Ok, try to look at it from this way.
Firstly correct me if I’m wrong.
In the exam. We were receiving € and our home currency was $. Yes ?Second, was the contract denominated in €125,000 or $125,000 ? I think €.. but i myt hav forgotten.
Third, did you notice that in the qs of polytot, the contract currency was the home currency(£) and we were receiving $ !
So if all the above are correct, then it stands to reason the following:
For understanding purposes, I’m gonna assume that our home currency is $ and the foreign currency is the €.
So In a receipt, if contract is in $(home). I’m going to BUY. Simply bcz I’ll receive € and thus will need to exchange them for $, by selling to the bank the € and buying $ !
Hence CALL option.**what’s happening in polytot qs.NOTE what determines your buy and sell is the contract denominated currency.
Thus if in receipt, the contract was of €. Now here we wud SELL. Same logic applys as above.
Thus it becomes a PUT option.
**what i think happened in exam.You told me look at qs on Kenduri, casasophia, alecto, phobos, CMC, POLYTOT.. all of these qs have their contract currency as THE HOME CURRENCY! Correct me if I’m wrong.
However, mock exam 1 qs 2 – Retilon plc.. the contract is in the Foreign currency.
Make out the differences now.Nati, building upon what you said. You’ll consider what currency the contract is in and then decide what to do.
You were receiving € and the contract was in €.
So ofc you’d hav to Sell the € to buy the $ and thus making it a PUT option.
Mission the qs ur talking about, plz notice that they all have the contract currency denominated in the Home currency.
So as for autocrate, ur gonna make a payment in $ and contract is in £.
Therefore you wud SELL the £ to BUY the $ and thus making this a PUT ! (Tell me if they didn’t do that !)I request that we move to private chat as this will become an annoyance to others.
Here’s my whatsapp number +255686703579.
Mission, pick any qs which u feel is correct.
And I’ll explain you the logic behind it.
I have sent an explanation to you, in private message. I wish that if you get the chance, plz read through it.
As of now pick any qs and you provide me with the details.
All i need is, – whether it’s a receipt or payment ? In which currency? What’s our home currency? And what’s the contract currency! ?
Just giv me the above info and I’ll do for u anything, options or future’s both.
It doesn’t matter if the qs didn’t ask for futures, bcz the CONCEPTS still remains the same. A BUY in futures is a CALL and SELL is PUT.
So just provide me with the above info of any qs you deem worthy.
Check out mock 1 qs 2, bpp….. Let me know if you require more qs samples.
or if you want to understand the concept.
It’s pretty simple.
A CALL (in short) is a right to BUY an underlying asset – here the denominated currency under the futures market.
A PUT is a right to SELL … All you need to do is to understand what were dealing with here or rather what you’re gonna trade in at the future date.
I’m officially out.
best of luck mate. cheers.
Ok Sir, if you say so.
i hope you noticed that it was a pesos receipt !
company in UK.
No futures market for pesos, thus you had to convert them to $.
THE FUTURES CONTRACT WAS DENOMINATED IN POUNDS !!!
Thus we had to BUY the POUNDS, inorder for us to SELL the DOLLARS !!
Therefore A CALL option !!
if you need more clarity, you may come in private chat.
I cud be wrong.
But I’m sure i can defend my perspective.
Just for references, you may want to check out the technical article on exchange traded derivatives. And bpp exam kit qs 84 polytot.
Anyways wish u all the best.
According to my concept, a call is the right t BUY the underlying asset and put is to SELL.
We were receiving € and were in the usa($). The contract was in €.
So therefore you wud only SELL € TO BUY $.
Thus being a PUT option.
Well atlest that what i did.
Yeah exactly. Bcz there was no future spot rate.
And just for clarity purposes. I got the lock in rate by deducting the basis from the future’s price. Since my futures price was higher than my current spot rate.
Jeffrey, bro thats the right thing to do. Atlest that’s what i wanted to do for qs1.
U hav to split btwn those 2 and then add the the other divisions value which u get after adjusting the p.e as stated in the scenior.
Man i screwed this qs.. i didn’t do that. I just forgot or rather didn’t hav confidence.
So i didn’t split, neither did i get the sale value. And further more i didn’t even deduct from the total value the debt value to get the equity value.
So i don’t knw hw much out of 18 will i get.
Then qs 2. Silly mistakes.. man i discounted at the real cost of capital.
I had even inflated the sales and variable cost. For some reason myb bcz i was running out of time.. i didn’t infalte the workign capital and the resale value. And discounted using real cost of capital.
Again I hope the examiner doesn’t penalise me more than 4 or 5 marks man.. otheriwse m doomed.Then qs 3.. silly blunder. Forgot the underhedge in the options.
Oh man ! The theory’s of the exam i didn’t knw alot. Was relying on the calculations.
Now don’t knw what’s gonna happen.