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Sir, when we have a receipt it is a call option right? I don’t understand why in Dec 2018 diet solutions they used a put option for the receipt.
You can’t learn which options to choose in terms of receipts and payments. It depends what currency the options are quoted in.
Here they are receiving CHF and so need to sell CHF’s to convert to $’s. They are CHF options, and so they are buying the right to sell CHF at a fixed rate – i.e. they are buying put options.
I do suggest that you watch my free lectures on foreign exchange risk management.
Hello Sir,
just coming back on this question because I had a similar question.
the question says the government will buy back the franchise for $7500 meaning, that Buryecs receives $, so I would assume that they need to sell the $ to convert to CHF.
or is it because of the way the exchange rate is quoted?
Please tell me which exam question you are referring to. Sefe’s question is referring to a question in the December 2018 exam which has nothing about buying back the franchise.
Hello Sir,
sorry about that, i am referring to Mar/Jun17 the question Buryecs co. on currency swaps and currency options.
thank you
Yes – it is the way the exchange rate is quoted.
The quote is Euro per dollar, so to convert $’s to euros we multiply by the exchange rate.
Sir, when solving questions on currency options i get confused on whether to round down or round up. For example I solved Kenduri Co (june 2013) and I rounded up the number of contracts but when I checked the solution they rounded down the number of contracts. Please sir, I need a clear explanation on this.
Thanks.
It does not matter whether you round up or down in the exam. The answer may be different but that does not affect getting the marks.
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