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Sir if we say convert $ into £ does not that mean we are selling dollar and buying £. In this question for money market hedge could you please tell me why r they choosing 1.5938 for converting us $2381543, should not they be using 1.5962,and if we look from another logic that we always get less then also they should b using 1.5962. Please clarify. Thanks
If we were converting the way that you say then you would be correct.
However, there is a net payment to be made in $’s and therefore they are buying $’s (not selling them).
Hello Sir,
Please help me with part c).
If you can explain in simpler words:)
Thank you so much.It was a bit unfair of the examiner to ask this, and there were a lot of complaints (so it is less likely for the future). To be fair, it was only 3 marks and so not a major part of a question.
A call option is the right to buy at a fixed price and so the higher the actual price then the more money you stand to make (because you would buy at the fixed price and then sell at the actual price).
A higher gamma means that the delta is charging a lot, which means that there are bigger changes in the price of the option as the share price changes. This happens when either the option is close to expiry, or when the exercise price is close to the actual share price.
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