Currency options - part 2
Taught by Ben Wilson · AI tutor support included
You'll learn how to apply currency options in a practical hedging scenario, calculating premiums, determining whether to exercise or lapse an option, and working out your effective exchange rate.
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In this lesson
- 0:00 Introduction to currency options
- 0:22 Understanding the Coast to Coast Code scenario
- 1:00 Call and put strike prices explained
- 1:27 Over-the-counter options and premiums
- 2:02 Identifying currency weakness and risk
- 2:40 Step-by-step hedging calculation walkthrough
- 4:30 Deciding whether to exercise the option
- 6:22 Computing net outcome and effective rate
- 7:47 Interpreting maximum cost protection
- 8:37 Key terminology and options summary
About this lesson
This video walks you through a real-world example of a US company hedging a £25 million payment obligation using an over-the-counter call option, showing you step-by-step how to analyse whether the option protects you against unfavourable currency movements. You'll discover why options are particularly valuable when your underlying transaction isn't certain, and how they give you the flexibility to benefit from favourable rates while capping your downside risk. This is essential knowledge for FM, AFM, and SBL papers where currency hedging and risk management are tested.
Duration: 9m
Transcript
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