Currency Option

This topic has 3 replies, 2 voices, and was last updated 13 years ago by John Moffat.

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September 26, 2012 at 5:31 pm #54512
evalstngj
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In calculating how many contracts to buy/sell, do we divide by spot or exercise price. My friend’s BPP used exercise price while my Kaplan text used spot. Thank you.
September 26, 2012 at 6:50 pm #105229
John Moffat
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You should use the exercise price. I have not seen the Kaplan text books, but if what you say is true then it seems that they are wrong.
September 26, 2012 at 9:16 pm #105230
evalstngj
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Thank you. It’s the solution to TYU 4 (Pongo) chapter 13.
“The current $/£ spot rate is 1.5190 – 1.5230”.
Solution:
How many contracts? Cover $350,000/1.5190 = £230,415 using £25,000 contracts ………….. 9 contracts.
September 28, 2012 at 8:27 am #105231
John Moffat
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Again, they should have used the exercise price (but I do not have the Kaplan books). Unless the exercise price was also 1.5190 then it would seem that they are wrong.
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