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Lirio co J16 for a receipt of 20M buy rate was used,Futures was go long and the buy rate was used to calculate the basis and option Buy Call Option
Casasophia J11 receipt of &20M Sell rate was used Futres was go long and the spot rate was used to calculate the basis. Option was buy call option.
Buryec co J17 Receipt of $7500 buy put option.I expected for every receipts we use sell rate because the coy will sell the currency to the bank but J16 contradite this knowledge. also for option receipt of $7500, buy call option is the norm but J17 was contrary. please am getting confused need your help
1. In Lirio they are receiving Euros and are therefore selling Euros and buying $’s. Therefore the answer is using the correct exchange rate (think about it – if they used the other rate they would end up with more $’s and that cannot be the case. It must be whatever is worse for the company, because it is the bank that makes the profit 🙂 )
They are buying a call option because the call option is the right to buy dollars.2. In Casasophia, they are receiving $’s and need to convert to Euro, so they will sell $’s and buy Euros. The option contracts are quoted in Euros and so they need call options – the right to buy Euros.
3. In Buryec they are receiving $’s and need to convert to Euros, so sell $’s and buy Euros. Here they are OTC options (so no contract currency). However since the exercise prices are given as $’s per Euro, they want the right to sell $’s and so will buy $ put options.
Have you watched my free lectures on foreign exchange risk management?
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