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A past paper had asked for difference between a Salam and futures contract..
Can I write this point as well? – ” In a Salam contract, actual delivery of the commodity takes place whereas in a future contract, there is no delivery of the underlying asset/ commodity and the settlement is only of the gain/loss on the contract”
One more question (related to hedging)
If the currency options are in $ for example, then the premium will always be in $ ( the premium currency will always be the contract currency) Am I right?
And if we were outside US, then they would be translated at the spot rateFirst question – that would be fine.
Second question – that does not have to be the case, but both the contract currency and the premium currency are always stated. When necessary, the premium will always be converted at the current spot rate.
Sir in Buryecs Co (MJ17), how can I identify that the premium currency was in Wirtonia $ ?
There was only mention of the contract currencyThese are OTC options and so there is no premium table.
They are hedging $’s, and the question says that the premium is a % of the amount hedged, translated at today’s spot rate. That makes it clear that the premium is in $’s.
So sir you said “They are hedging $’s”. You concluded that because the OTC options are in Wirtonia $, am I right?
(I know originally we want to hedge the $ receipt, but many a times contract currency differs from currency we are hedging and so asking you this)Oh one more thing which clicked me.If they are saying “translated at today’s spot rate” ,that definitely means that premium is in $. (So clear in this question)
But what if that wasn’t written how would I able to identifyI hope you understood what I’m confused with
Sorry to make it a little lengthyFor your first sentence, correct 🙂
As far as the premium is concerned, the question will always make it clear what currency it is quoted as. If they are traded options then it is always stated on the table of premiums. If they are OTC options then it is as in this question.
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