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Dear sir,
I don’t understand why in (c), the answer used put options instead of call options.
If the government buy back the franchise, shouldn’t that $7500m be converted into Euro using call options? Since Buryecs is based in Eurozone, and it should be selling Dollars and buy Euro (so call options).
The options are $ options. They are selling $’s and so they are put options in $’s.
The question does not say that.
It says that they are over the counter options in $’s.
I thought the question said “The exercise price quotation is in Wirtonia $ per €1, premium is % of amount hedged, translated at today’s spot rate.”?
Since it’s per €1, is this not a Euro option?
But the question says “….OTC options in Wirtonia $’s” which means that they are options to buy or sell Wirtonian $’s.
ah I see. So the trick here is to always look at what currency the contracts are denominated in (the words of the qn), rather than guessing or inferring from the option table?
ah I see. So the trick here is to always look at what currency the contracts are denominated in (the words of the qn), rather than guessing or inferring from the option table?
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