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Ask the Tutor ACCA AFM

Options in AFM

AAvery5y ago
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
John MoffatJohn MoffatTutor5y ago#1
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.
AAvery5y ago#2
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
John MoffatJohn MoffatTutor5y ago#3
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.
AAvery5y ago#4
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
John MoffatJohn MoffatTutor5y ago#5
You are welcome, and thank you for your comment :-)
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