zaydalnakib
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- Feb 5, 2015
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Reading 18 - Question 17
Subscriber 2: “I have observed that many of the overseas markets for Korean export goods are slowing, while the united states is experiencing a rise in exports. Both trends can combine to possibly affect the value of the KRW relative to the USD. As a result, I am considering a speculative currency trade on the KRW/USD exchange rate. I also expect the volatility in this exchange rate to increase.
17. For subscriber 2, and assuming all of the choices relate to the KRW/USD exchange rate, the best way to implement the trading strategy would be to:
A) Write a straddle
B) Buy a put option
C) Use a long NDF Position.
I selected B) Buy a put option. My justification: And increase in USD exports could mean the result of a depreciation USD, therefore purchasing a put option on the USD would protect from losses of the depreciation and gain from the loss.
CFA SAYS: Based on predicted export trends, Subscriber 2 most likely expects the KRW/USD to appreciate (KRW depreciate and USD appreciate). Therefore a Long NDF position is the choice.
WTF??? Everything i’ve learned to date in my life says that depreciating currency = good for exports because you are able to sell to other markets at a cheaper rate thus increasing demand for domestic goods abroad. But for some reason this time it switches on me.
CAN SOMEONE ELABORATE? I think it’s saying that US is safer because the economy is growing and therefore you should expect the USD to appreciation? Or growth is slowing in KRW in general???? So confusing, time and time again… contradictory information every reading.
Subscriber 2: “I have observed that many of the overseas markets for Korean export goods are slowing, while the united states is experiencing a rise in exports. Both trends can combine to possibly affect the value of the KRW relative to the USD. As a result, I am considering a speculative currency trade on the KRW/USD exchange rate. I also expect the volatility in this exchange rate to increase.
17. For subscriber 2, and assuming all of the choices relate to the KRW/USD exchange rate, the best way to implement the trading strategy would be to:
A) Write a straddle
B) Buy a put option
C) Use a long NDF Position.
I selected B) Buy a put option. My justification: And increase in USD exports could mean the result of a depreciation USD, therefore purchasing a put option on the USD would protect from losses of the depreciation and gain from the loss.
CFA SAYS: Based on predicted export trends, Subscriber 2 most likely expects the KRW/USD to appreciate (KRW depreciate and USD appreciate). Therefore a Long NDF position is the choice.
WTF??? Everything i’ve learned to date in my life says that depreciating currency = good for exports because you are able to sell to other markets at a cheaper rate thus increasing demand for domestic goods abroad. But for some reason this time it switches on me.
CAN SOMEONE ELABORATE? I think it’s saying that US is safer because the economy is growing and therefore you should expect the USD to appreciation? Or growth is slowing in KRW in general???? So confusing, time and time again… contradictory information every reading.