Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Options in AFM
- This topic has 5 replies, 2 voices, and was last updated 4 years ago by
John Moffat.
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- January 4, 2021 at 12:32 am #601384
Dear Sir,
I have learnt that for options:If it is an interest rate futures option:
we buy put options – if we are borrowing money
we buy call options – if we are receiving moneyIf it is a currency option:
we buy call option – if we are paying money in foreign currency
we buy put option – if we are receiving money in foreign currencyHowever, in the Question Kenduri Co, in the answer, they are buying Put options. I feel like I may have learnt wrong, if that is the case could you kindly refer me to the lectures for options so that I may clarify my misunderstanding?
I have tried understanding the answer my reading it over and over again and this is what I’ve understood – could you check if it is correct or not?
We (Kenduri) have to pay $2,400,000
But our home currency is in £
so that means we have pounds and we need to buy dollars – in order to pay the debt
that means we have to sell our pounds to dollars
therefore we buy a right to sell – we buy a put option
is my logic correct? if yes, can i apply this for all currency option questions?Also, could you help me understand the issue in kenduri co, assuming that what i wrote above about options is correct
Thank you
January 4, 2021 at 8:31 am #601401You are correct.
The options contracts are quoted in Pounds, and in order to buy dollars we need to sell Pounds – so a put option.
January 4, 2021 at 10:09 am #601410Is this part correct sir?
If it is an interest rate futures option:
we buy put options – if we are borrowing money
we buy call options – if we are receiving moneyIf it is a currency option:
we buy call option – if we are paying money in foreign currency
we buy put option – if we are receiving money in foreign currencyThank you so much sir!!…and sorry for asking too many questions
January 4, 2021 at 2:56 pm #601442For interest rate options you are correct.
For currency options it is whether you are buying or selling the currencyI in which the contract size is quoted. If buying the contract currency it is a call option, if selling the contract currency it is a put option.
January 4, 2021 at 3:35 pm #601450Thank you so much sir!
You are a heaven sent!
Once I get employed I’ll make a commitment to donate to opentuition. You guys have helped me beyond imaginationJanuary 5, 2021 at 7:09 am #601481You are welcome, and thank you for your comment 🙂
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