Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Lirio Co Q1 Mar/June 2016
- This topic has 3 replies, 2 voices, and was last updated 6 years ago by John Moffat.
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- December 5, 2017 at 6:36 pm #420775
Hi sir, I have a question. When come to calculate the premium payable under the option contracts, how to determine which spot rate should be used in order to convert into ($)?What’s the logic behind? Thanks.
December 5, 2017 at 9:42 pm #420818The premium on options is always payable immediately and so will always be converted at the spot rate on the date the option is purchased.
I do suggest that you watch my free lectures on foreign exchange risk management, where all of this is explained.
December 6, 2017 at 5:33 am #420844Hi Sir. Thanks for the reply.
For this question, the premium is converted the spot rate of $1.1618 instead of $1.1585. For my understanding, I applied the bank always wins rule.
However, I found the similar question in June 2011 Q2 Casasophia. The premium is converted by $1.3585 instead of $1.3618.
These two scenarios are considered the same situation? Or is my misunderstanding? It made me confused.
Thanks.
December 6, 2017 at 8:30 am #420900In Lirio, the option premiums are quoted in Euros, and the spot exchange rates are quoted as $’s per Euro.
So to convert the premium payment to Euros we multiply by the higher of the two rates.In Casasophia, the option premiums are quoted in US cents. The exchange rates are quoted as $’s per Euro. So to convert the premium payment to Euros we divide by the lower of the two rates.
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