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This is really confusing me,
1) US company receiving £3.75million from UK customer…so you’re selling those £ and buying $, so you buy a put option
2) UK company receiving $40million from US customer…so you’re selling those $ and buying £, so you buy put option
3) UK company is due to receive $2.96million…so you sell Euros, buy £ therefore call option
I am confused how we knew these were puts/calls
For example: why couldnt scenario 2 be a call option, as you buying £ and selling $ so therefore buy call option?
and again scenario 3 – as you are selling euros, couldnt you buy a put option?I feell like im missing something fundamental with these questions?
Ok ive been told its all based on the contract currency…so with scenario 1, as they are receiving £’s, you think am i buying or selling pounds? in this case you are selling those
if it said US company paying 5mill SGD, you think am i buying or selling SGD…in this case you are buying the SGD and selling dollars, so you buy a call
Is this correct?
Yes – that is correct 🙂
Have you not watched my free lectures on foreign exchange risk management?
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