What are you buying if you purchase a Swiss franc American call option against the U.S. dollar with a strike price of CHF1.30/$ and a maturity of January? (Assume that it is November and the spot rate is CHF1.35/$.)
What will be an ideal response?
American options can be exercised anytime between the purchase of the option and the maturity date. Thus, a Swiss franc American call option against the U.S. dollar with a strike price of CHF1.30/$ and a maturity of January gives the buyer the right, but not the obligation, to purchase CHF with USD at a price of CHF1.30/$ between November and the maturity date in January. The option is currently said to be "out of the money" because the strike price (expressed in dollars per Swiss franc) is higher than the current exchange rate [(1/1.30) > (1/1.35)] and you are purchasing CHF.
You might also like to view...
A tax free investment will always have a higher after-tax return than a taxable investment
Indicate whether this statement is true or false.
A/An ________ is a list of topics to be covered during a meeting or conference, arranged in the order in which the topics will be discussed
A) amendment B) agenda C) appointment D) span of control