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Hi,
Both Buyrecs Co and Fondir Co have amount receivable in foreign currency and both have their call option quoted in foreign currency ( For instance the call option for Fondir Co quoted as LL 4.00 per $1). However, Fondir Co uses the call option and Buyrecs Co uses put option. Could you please explain why?
Regards,
JinanshYou will have to tell me the date of each of the exams. I have all past exams but I cannot remember the name of every question 🙂
Hi,
Thanks for your prompt reply. Buryecs Co is from March/June 2017 and Fondir Co is from December 2022.
It is not the currency of the premium payable that determines whether we buy put or call options.
When they are traded options it is the currency in which the contract size is quoted that matters (as I explain in my free lectures).
However in both of these questions they are over-the-counter options.
In Buryecs the question says that they are options in Wirtonian $’s. The transaction at risk involves selling Wirtonian $’s and so they need a put option in Wirtonian $’s.
In Fondir the question says that they are OTC $ options. The transaction at risk involves selling LL’s in order to buy $’s and so the need a call option in $’s.
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