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Options in AFM

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.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • January 4, 2021 at 12:32 am #601384
    jareerabedin
    Member
    • Topics: 91
    • Replies: 72
    • ☆☆

    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 money

    If 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 currency

    However, 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 #601401
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    You 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 #601410
    jareerabedin
    Member
    • Topics: 91
    • Replies: 72
    • ☆☆

    Is 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 money

    If 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 currency

    Thank you so much sir!!…and sorry for asking too many questions

    January 4, 2021 at 2:56 pm #601442
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    For 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 #601450
    jareerabedin
    Member
    • Topics: 91
    • Replies: 72
    • ☆☆

    Thank 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 imagination

    January 5, 2021 at 7:09 am #601481
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    You are welcome, and thank you for your comment 🙂

  • Author
    Posts
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