ADMS 1000 Lecture Notes - Lecture 16: Call Option

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

Document Summary

Jensen may not mind this outcome, however, because it will receive a high dollar amount from converting its pound receivables in the spot market. Conditional currency options are also available for u. s. firms that need to purchase a foreign currency in the near future. A conditional call option on pounds may specify an exercise price of . 70 and a trigger of . 67. If the pound"s value remains above the trigger of the call option, then no premium will be due for the call option. However, if the pound"s value falls below the trigger, then a large premium (such as. Some conditional options require a premium if the trigger is reached at any time before the expiration date. This outcome, however, because it will receive a high dollar amount from converting its pound receivables in the spot market. The potential advantage and disadvantage are both illustrated in exhibit 5. 7.