ADMS 1000 Lecture Notes - Lecture 3: Call Option

• School: York University
• Department: Administrative Studies
• Course: ADMS 1000
• Professor: Alan Shapiro

Document Summary

Morrison co. is attempting to acquire a french firm and has submitted its bid in euros. If the spot rate of that currency does appreciate, then these speculators can exercise their options by purchasing that currency at the strike price and then selling it at the prevailing spot rate. Just as with currency futures, for every buyer of a currency call option there must be a seller. To acquire a french firm and has submitted its bid in euros. Morrison has purchased call options on the euro because it will need euros to purchase the french company"s stock. The call options hedge the u. s. firm against possible appreciation of the euro by the time the acquisition occurs. If the acquisition does not occur and the spot rate of the euro remains below the strike price, then morrison co. will let the call options expire.