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This refers to the specimen answer given on page 14
Why for the cost of the options do they state it in dollars? The question says that the premium is ” cents per CHF1″ and the calculation is derived as : 38 contracts at 125 000 CHF each. Why is the answer in US$?
Exercise price US$1·06/CHF1
Payment = US$5,060,000/1·06 = CHF4,773,585
Buy 4,773,585/125,000 = 38·19 put contracts, say 38 contracts
CHF payment = CHF4,750,000
Premium payable = 38 x 125,000 x 0·0216 = US$102,600
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