Dash Brevenshure works for the currency trading unit of ING Bank in London. He speculates that in the coming months the dollar will rise sharply vs. the pound. What should Dash do to act on his speculation?

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Business

Andreas Schaefer

9 April, 14:08

Dash Brevenshure works for the currency trading unit of ING Bank in London. He speculates that in the coming months the dollar will rise sharply vs. the pound. What should Dash do to act on his speculation?

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Answers (1)

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Cassius Rivas · Answer 1

Answer: C) Buy a put on the pound.

Explanation:

A put option is a contractual obligation giving the owner the right but not the obligation to sell or sell short a specified amount of an underlying asset at a pre-determined price within a specified time frame.

Dash Brevenshure should BUY A PUT on the Pound because that would give him the right to sell the Pound a higher rate when the Pound drops so that he can make a profit on buying more dollars and then using those dollars to buy back a higher amount of Pounds.

If the Put Option allows him to sell Pounds at a rate of £1 is to $1.5 even though the exchange rate has dropped to £1 is to $1.2 then he can buy more dollars if he had a Put option that allowed him to sell the Pound at £1 is to $1.4.

Do comment if you need any clarification.