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- This topic has 3 replies, 2 voices, and was last updated 2 years ago by John Moffat.
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- May 22, 2021 at 8:28 pm #621475
Hi Mr John,
may you please clarify this part.
Lirio Co will receive euro (€) 20 million, which it needs to convert to USD as its main currency is USD. as per my understanding it should purchase the right to sell the EURO and buy USD, hence the put option should be selected., the right to sell.
may you please explain, why call option is selected?
Thank you
May 23, 2021 at 10:46 am #621511The option contract size is quoted in $’s. They need to buy $’s and therefore they will buy $ call options.
May 23, 2021 at 12:31 pm #621529Hi Mr John,
if
1. Received is EURO- contract size is EURO – then they need to sell EURO to buy USD- put option will be selected- option to sellif
2. Received is EURO – contract size is USD – then they need to buy USD – call option- option to buy—- but they need to sell EURO and have put option in place to convert in USD.
may you please clarify this part, confusing 🙁
thank you
May 23, 2021 at 2:46 pm #6215381. Is correct.
For 2, if the contract size is quoted in $’s, then because they need to buy $’s they will buy a call option.
Have you watched my free lectures on foreign exchange risk management where this is explained?
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