Chapter 02 · Section 2.1

Exchange Rate Rise

Suppose that Victor expected a strong rise in the US/DM exchange rate. What kind of option would he logically purchase?

a) DM call options (quoted in US$).
• b) DM put options (quoted in US$).
  No. A put option gives its holder the right to sell the underlying asset at the specified exercise price. If the price of the underlying asset falls, the holder of a put option realizes a profit. He does not profit from a rise in prices.
  c) DM calls or puts (quoted in US$).

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