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Question : On LIRIO CO (MAR/JUN 16)
IF exchange rates are $/€1.1585-1.1618
Buy $ @ 1.1585 , Sell $ @1.1618
Buy €@1.1618, Sell €@ 1.1585 ?Premium payable =186 *125,000*0.0290=€674,250
Premium in $=€674,250*1.11618 =$783,344
Should it not be $=€674,250*1.1585=$781,118 AS we are Selling Euro Please help or did I miss understand the buy and selling of Euro as above ?
In order to pay the premium they are having to buy €’s (not sell them) 🙂
Hi John ,
Thank u greatful u responded.
But when they are converting the premium which is in euros to dollars aren’t they selling the euros as above ?
The premium is quoted in €’s per $ in the table, so the amount of the premium is in €’s. Since the company works in $’s they will have to buy €’s to pay the premium.
This is very similar to one of the exercises that I work through in my free lectures 🙂
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