Dec12/Q2: Lignum

The transaction involved receiving Zupesos, therefor they will be selling Zupesos and buying Euros. The options are Euro options, and they want the right to buy Euros – so it is a call option.

You are welcome 🙂

Sir in this question for basis points 25 and 30 why r we taking.0025 and .0035 rather then .25 and .30
Thanks

I don’t know what you mean by elaborate – please just ask which bits of the answer you don’t understand. (And I do assume that you have watched the lectures on interest rate futures and options?)

25 basis points is 0.25%, which is the same as 0.0025

(Just as 10% is the same as 0.1, and 1% is the same as 0.01)

Interest rates are always quoted as yearly rates.

Here, the receipt will be in 4 months time. Since there are 3 lots of 4 months in a year, we need to divide the annual rates by 3 to get the rate for 4 months.