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When calculate profit on option ?

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › When calculate profit on option ?

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • February 12, 2024 at 10:34 am #700108
    phuongmore
    Participant
    • Topics: 132
    • Replies: 128
    • ☆☆☆

    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.

    February 12, 2024 at 7:42 pm #700182
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54671
    • ☆☆☆☆☆

    It 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?

    February 13, 2024 at 4:33 am #700193
    phuongmore
    Participant
    • Topics: 132
    • Replies: 128
    • ☆☆☆

    The calculation of profit/loss on future also applied for interest rate future only, not for FX future ?
    Thank you.

    February 13, 2024 at 7:46 pm #700244
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54671
    • ☆☆☆☆☆

    Yes – 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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