Foreign Currency Options Flashcards
Is the trading between domestic and foreign banks regulated or unregulated?
It is UN-regulated
How do foreign currency TRADES settle?
Spot Market: (1 business day, sometimes 2 because of time change) OR
Forward: months into the future
How do banks treat their currency if they think it is undervalued and overvalued, respectively?
If undervalued, they will buy it
If overvalued, they will sell it
How does a country’s currency value change in relation to interest rates?
If a country’s interest rates rise, the currency values rise, and vice-versa
Where are foreign currency option contracts traded?
ONLY on the PHLX (Philadelphia Exchange)
What is EPIC?
EPIC: EXporters buy PUTS and and IMporters buy CALLS
What is the contract size for foreign currency options?
They are all 10,000 except the Japanese Yen, which is 1,000,000
What style are foreign currency options available in?
European only
Are foreign currency options quoted in terms of US Dollars or Foreign Currency?
U.S. Dollars baby
A customer buys 100,000 Australian Dollars at 90 and buys 10 PHLX Canadian Dollar Oct 89 Puts @ $3. The customer profits if the Australian Dollar is trading:
$.9300. The customer bought the Australian Dollars at $.90 and bought a put at a premium of $.03 as a hedge against a fall in the currency. The total outlay was $.90 + $.03 = $.9300 per Australian Dollar. To profit, the Australian Dollar must rise above $.9300
The November stock option contracts of a company assigned to Cycle 1 have just expired. Which contracts will commence trading on the CBOE?
July. Cycle 1 contracts are issued for the months of Jan - Apr - Jul - Oct. One can always get a contract for this month, next month, and the next 2 months in the Cycle. In November, prior to expiration, the contracts that will trade are November (this month), December (next month), January and April (the next 2 months in the cycle). After November contracts expire, the contracts that will trade are December (this month), January (next month), April and July (the next 2 months in the cycle).
A customer buys an ABC May 50 Put and sells an ABC Jun 50 Put. The customer profits if:
The spread narrows or both contracts expire.
The June expiration must be longer than the May expiration. The maximum life of a regular option contract is 9 months. If it is now May, then the June contract can trade (since it is 1 month later than May). However, if it is June, a May contract cannot be trading, because the following May is 11 months away. Thus, the customer is buying the near expiration (less expensive) and selling the far expiration (more expensive since there is more time left to the contract), so this must be a credit calendar spread. r
How do foreign currencies trade?
In the interbank market, over the counter
How do foreign currency OPTIONS trade?
Cash OR Regular way
