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Hello sir,
In Chapter 19, Example 3
When we calculate the premium i.e $8250
It needs to be changed in pounds therefore we sell $ to buy a pound
And according to the rule when the first currency is sold we will use the higher rate.
So why are you using the lower rate?Answer to example 3
(a) • Put options
• April
• Strike of 1.475
• Contracts: 1,000,000 ÷ 1.475 ÷ 31,250 = 22
• 22 × 31,250 × 0.0120 = $8,250
8,250 ÷ 1.4850 = £5,556 (payable now)
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