Nutourne Co (a) – Calculation of the option premium

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April 19, 2022 at 2:32 pm #653921
sarah762
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ANSWER GIVEN (AN EXTRACT OF IT)

1·0375 options
= 98 x 125,000 x 0·0086
= $105,350

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Why the answer did not multiply with the spot rate of US$1.0292/CHF, to convert the CHF currency contracts (ie 98 x CHF125,000) to US$ before multiplying it with the premium of US$0.0086/CHF?

(ie 98 x 125,000 x 0·0086 x 1.0292 = $108,426)
April 19, 2022 at 2:49 pm #653928
John Moffat
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The premiums are quoted in $’s per CHF. So for every 125,000 CHF the premium is 0.86 $’s, So we do not need to convert the CHF in order to calculate the premium.
April 19, 2022 at 5:15 pm #653970
sarah762
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What if the premiums are quoted in CHF/$, how to calculate?

Is it we will divide instead of multiplying (ie 98 x CHF 125,000 / CHF 0.0086 = $1,424,419) ?

Is that correct?
April 20, 2022 at 7:07 am #654023
John Moffat
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That would then be correct, but obviously not in the original question.
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