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Dear Sir,
Could you please explain how to decide whether the buy call or put options for over the counter currency options?
For example – In Lignum Co, a receipt of the foreign currency (ZP 140m) is hedged using call option, whereas in Buryecs Co, the receipt of the foreign currency (D27m) is hedged using a put option.
I find both contradicting. Could you please explain how to make the choice?In Lignum, they are receiving ZP and therefore need to sell ZP and buy Euros.
The options available are Euro options – the option to buy or sell Euros. Given that they need to buy Euros they will use Euro call options.In Buryecs, they are receiving W$’s and therefore need to sell W$’s and buy €’s. The options are in W$’s – the option to buy or sell W$’s. Given that they need to sell W$’s they will use W$ put options.
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