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Dear Sir,
Please I am confuse why in the currency option part of the question in (a), results were calculated for both strike prices. Why was the strike price with the highest net receipt not chosen and net result compared with that of the forward contract?
Please clarify me on this part of the question. Thanks
You can never say which is the best option – different strikes will set different limits but have different costs.
So depending on whether or not the option ends up needing to be exercised may mean that we would have preferred one or the other, but we do not know in advance what will happen.
That is why you should look at all strikes and then discuss.
(Although if you are running out of time, then just looking at one of them should get more than half the marks provided you can prove you know how options work 🙂 )
You might lose one or two marks – you can always mention it even if you do not do the arithmetic.
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