Mr. John is the financial manager of XYZ Company Ltd., which deals in FOREX trading. The company is doing well and the volume of transactions is up to the target. It is starting a new policy to attract the corporate treasurer and other financial executives to invest in risk-free option trading. Mr. X has been assigned the task of meeting the prospective investor and explaining the company’s risk management policy, features of options, and benefits of trading in options to them. He has to convince the investors about the advantages and uniqueness of trading in FOREX, especially in option contracts. As a representative of the company, he suggests to the client how an option can be profitably used for hedging FOREX currency risk. The trading environment is very favorable and the government has recently announced liberal policies to encourage individual investors to participate in the financial market. Assume that the Sensex and Nifty has already attained 41000 and 12100 level and is expected to move up in near future. Keeping in view the facts of above case, answer the following question, (i) Which type of option would suit the investors the most in the current situation and why? (ii) How is the option contract better than other financial derivatives?
Mr. John is the financial manager of XYZ Company Ltd., which deals in FOREX trading.
The company is doing well and the volume of transactions is up to the target. It is starting a new
policy to attract the corporate treasurer and other financial executives to invest in risk-free option
trading. Mr. X has been assigned the task of meeting the prospective investor and explaining the
company’s risk management policy, features of options, and benefits of trading in options to
them. He has to convince the investors about the advantages and uniqueness of trading in
FOREX, especially in option contracts.
As a representative of the company, he suggests to the client how an option can be profitably
used for hedging FOREX currency risk. The trading environment is very favorable and the
government has recently announced liberal policies to encourage individual investors to
participate in the financial market. Assume that the Sensex and Nifty has already attained 41000
and 12100 level and is expected to move up in near future.
Keeping in view the facts of above case, answer the following question,
(i) Which type of option would suit the investors the most in the current situation and
why?
(ii) How is the option contract better than other financial derivatives?
Step by step
Solved in 2 steps
