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Hi Sir,
Could you please explain the options part in the Buryecs Co question?I am having difficulty in understanding that part
The options give them the right to convert the $7500 at the exercise price or alternatively to convert at whatever the spot rate turns out to be.
Given that the expected spot rate will be 7.6046, if they have bought an option with an exercise price of 7.75 it will be better to convert at spot and not use the option.
If they have bought an option with an exercise price of 7.25 then it will be better to use the option.
In both cases they have to pay the premium whether or not they end up using the option.
Have you watched my free lectures on foreign exchange options?
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