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Sir,
1) When we are talking about currency futures:
We say that we buy futures contracts, if we buy contractual currency, and vise versa;
When it comes to interest rate futures, we say that if we expect favorable movement in spot rate then we have buy futures contracts, and vice versa;2) As I understand for interest rate options, we buys put option when we borrow and buy call option when we expect to receive coreign currency. Then in which cases we sell call options and put options?
Similarly, how to approach with this issue in currency options?
Bit confused here.3) in interest rate swap questions, if it is not told what is preferred way of the Company’ borrowing either at fixed rate or variable rate, how its better to approach the question? In your cideo lecture it says that company a prefers fixed rate.
Thank you very much for tour responses in advance. They are really clear and easy to memorise and very helpful.1. With currency futures you are correct.
With interest rate futures it depends whether they are borrowing or investing. If they are borrowing then they will always sell futures (and buy back later); if they are depositing then they will always buy futures (and sell later). It is of no relevance which way they expect the interest rate to move.2 Interest rate options are used when you are borrowing or depositing money – it has nothing to do with foreign currencies. If you are borrowing money they you will buy a put option, if you are depositing money you will buy a call option.
With currency options, if you are receiving the contract currency then you will buy a put option, if you are paying the contract currency then you will buy a call option.3 Most questions (certainly recent ones) tell you whether they want to borrow fixed or floating. If the question does not, then you see which would be cheaper in total and go for that 🙂
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