AFM Specimen paper 09/18_Q1

This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.

Viewing 2 posts - 1 through 2 (of 2 total)

Author
Posts
November 26, 2018 at 5:35 pm #486044
philannw
Member
- Topics: 3
- Replies: 5
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
November 27, 2018 at 8:20 am #486094
John Moffat
Keymaster
- Topics: 57
- Replies: 54836
It is because the premia are given as ‘cents per CHF1’.
So for every CHF1 the premium is 0.0216 US cents.
I do suggest that you watch my free lectures on managing foreign exchange risk, because I explain this point (with examples).
Author
Posts

Viewing 2 posts - 1 through 2 (of 2 total)

You must be logged in to reply to this topic.