CURRENCY OPTION CURRENCY OPTION MARKETMARKET

TWO TYPESTWO TYPES

CURRENCY CALL OPTIONCURRENCY CALL OPTION

CURRENCY PUT OPTIONCURRENCY PUT OPTION

CALL OPTIONCALL OPTION

DEFINITIONDEFINITION

RIGHT TO PURCHASERIGHT TO PURCHASE

SPECIFIC CURRENCYSPECIFIC CURRENCY

SPECIFIC PRICESPECIFIC PRICE

SPECIFIC PERIODSPECIFIC PERIOD

TTHEHE INTERNATINAL STANDARDS ORGANIZATION INTERNATINAL STANDARDS ORGANIZATIONTHREE LETTER CODES FOR ALL CURRENCIESTHREE LETTER CODES FOR ALL CURRENCIES

USD : US DollarUSD : US Dollar GBA: Grade Britain GBA: Grade Britain

Pound Pound JPY: Japanese yen JPY: Japanese yen CAD: Canadian DollarCAD: Canadian Dollar DEM: Deutsche marksDEM: Deutsche marks NLG: Dutch GuilderNLG: Dutch Guilder FRF: French FrancFRF: French Franc ESP: Spanish PesetaESP: Spanish Peseta INR: Indian RupeeINR: Indian Rupee

ITL: Italian LiraITL: Italian Lira SAR: Saudi RiyalSAR: Saudi Riyal AUD: Australian $AUD: Australian $ EUR: EuroEUR: Euro IEP: Irish Pound (Punt)IEP: Irish Pound (Punt) CHF: Swish FrancCHF: Swish Franc SEK: Swedish CronerSEK: Swedish Croner DKK: Danish kronerDKK: Danish kroner

On MARCH 31On MARCH 31stst 2006 British Pound Call Option 2006 British Pound Call Option sells for the Following :sells for the Following :

Spot rate $ 1.2735Spot rate $ 1.2735 No of units : 12500 GBP No of units : 12500 GBP (IN ONE CONTRACT)(IN ONE CONTRACT)

Currency Strike Price June Sept DecCurrency Strike Price June Sept Dec GBP $1.15 13.80c 14.00c -----GBP $1.15 13.80c 14.00c ----- $1.25 4.00 c 7.00 c -----$1.25 4.00 c 7.00 c ----- $1.35 0.20 c 2.65 c 4.20$1.35 0.20 c 2.65 c 4.20 SUPPOSE U CHOOSE JUNE CALL OPTIONSUPPOSE U CHOOSE JUNE CALL OPTION

CONTRACT IS EXERCISED IN JUNECONTRACT IS EXERCISED IN JUNE

IF IN JUNE SPOT GOES TOIF IN JUNE SPOT GOES TO $ 1.234 = 1 GBP $ 1.234 = 1 GBP CALCULATION :CALCULATION :

@ Strike 12500 * 1.25 = $ 15625 PAID@ Strike 12500 * 1.25 = $ 15625 PAID Fees 12500 * 0.04 = $ 500 PAIDFees 12500 * 0.04 = $ 500 PAID @ Spot 12500 *1.234 = $ 15425 REC @ Spot 12500 *1.234 = $ 15425 REC

TOTAL PAID = $ 16125 TOTAL PAID = $ 16125 (15625+500)(15625+500)

WITHOUT OPTION = $ 15425 WITHOUT OPTION = $ 15425 LOSS =$ 700LOSS =$ 700

TRADITIONAL & TRANSACTIONAL TRADITIONAL & TRANSACTIONAL OPTIONSOPTIONS

EUROPEAN OPTIONSEUROPEAN OPTIONS

AMERICAN OPTIONSAMERICAN OPTIONS

Factors Affecting Call Option PricesFactors Affecting Call Option Prices

Level of existing spot price relative to strike Level of existing spot price relative to strike priceprice..

The higher the existing spot price relative to the strike The higher the existing spot price relative to the strike price the higher will be the option price price the higher will be the option price

Length of time before the settlement date.Length of time before the settlement date.

Potential variability of currency. Potential variability of currency. The greater the variability of the currency the greater the The greater the variability of the currency the greater the

chance that the spot rate will be above the strike price.chance that the spot rate will be above the strike price.

PUT OPTIONPUT OPTION

DEFINITIONDEFINITION

RIGHT TO SELLRIGHT TO SELL

SPECIFIC CURRENCYSPECIFIC CURRENCY

SPECIFIC PRICESPECIFIC PRICE

SPECIFIC PERIODSPECIFIC PERIOD

Example Example

On May 31On May 31stst 2005 British Pound Put Option sells 2005 British Pound Put Option sells for the Following :for the Following :

Spot rate $ 1.2735Spot rate $ 1.2735 No of units : 12500 GBPNo of units : 12500 GBP

Currency Strike Price June Sept DecCurrency Strike Price June Sept Dec GBP $1.15 0.05c 1.20c 2.75GBP $1.15 0.05c 1.20c 2.75 $1.25 0.30c 4.35c 7.25$1.25 0.30c 4.35c 7.25 $1.35$1.35 -------- ------- ------------- ------- -----

IN SEPTEMBERIN SEPTEMBER

CALCULATIONCALCULATION