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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Options

  • This topic has 1 reply, 2 voices, and was last updated 10 months ago by John Moffat.
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  • Author
    Posts
  • November 15, 2022 at 9:20 am #671488
    accacx
    Participant
    • Topics: 4
    • Replies: 3
    • ☆

    Dear sir, I do not understand the following MCQ :

    Which of the following measures will allow a UK company to enjoy the benefits of a favourable change in exchange rates for their Euro receivables contract while protecting them from unfavourable exchange rate movements?
    Answer : a put option for Euros

    Can you explain this, please? Thank you!

    November 16, 2022 at 8:34 am #671572
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53175
    • ☆☆☆☆☆

    An option gives the rise to convert at a fixed rate (on the date of the transaction they therefore have the choice between converting at spot or using the option to convert at the fixed rate.

    Given that they are receiving Euros they therefore need the right to sell Euros at a fixed rate. Have the right to sell is a put option.

    This is all explained in my lecture on foreign exchange risk management. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.

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