I practiced some past exam question on option ( FX risk) and see that the examiners do not calculate profit on option.
Please explain why.
Do we only calculate profit on option in case of question regarding to interest rate ?
Thank you.
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When calculate profit on option ?
2y ago#1It will be easier for me to explain if you refer to specific questions.
However with foreign exchange options you either exercise the option at the exercise price, or you discard the option and instead convert at spot.
It is only with interest rate options that there is a potential gain on the options, because they are options to buy or sell futures.
Have you watched all of my free lectures on this?
The calculation of profit/loss on future also applied for interest rate future only, not for FX future ?
Thank you.
2y ago#3Yes - that is correct.
Again, have you watched my free lectures on both foreign exchange risk management and on interest rate risk management?
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