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
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.
Cookies
We serve cookies. If you think that's ok, just click "Accept all". You can also choose what kind of cookies you want by clicking "Settings". Read our cookie policy