EPIC or IPEC? Foreign Currency Options on Series 7 Exam

There are no listed options in the U.S. dollar. That reduces your choice to a long euro put or call. Because the contract will be paid for in dollars, the producer is concerned that the dollar will fall against the euro. Or, stated another way, the concern is that the euro will rise against the dollar so that the $10 million will not buy as many euros as on the day the contract was signed. When one is afraid the price of asset will rise, such as those who take a short position in a stock, the best protection is buying a call. The easiest way to remember this is through the acronym, IPEC – Importers buy Puts and Exporters buy Calls. This is used when the party involved in the question is in a foreign country. Because we are dealing with a French exporter, buying calls on the local currency offers the best protection.

Quick recap
Dean discussed the importance of understanding the Kaplan Qid and its benefits for test takers, and clarified the difference between EPIC and IPEC. He also explained the concept of foreign currency options and how they can protect against currency risk using the example of a French winery exporting wine to the US. Lastly, he encouraged test takers to practice with foreign currency practice questions and offered to answer any explication requests.
Next steps
• Dean to add links to foreign currency practice questions in the video description.
• Dean to include a link to additional content about the difference between EPIC and IPEC in the video description.
Summary
Understanding Kaplan Qid and Currency Risk
In the meeting, Dean discussed the importance of understanding the Kaplan Qid and its benefits for test takers. He explained the concept of foreign currency options and how they can protect against currency risk. Dean also clarified the difference between EPIC and IPEC, which are memory devices for importers and exporters respectively. He used the example of a French winery exporting wine to the US to illustrate how a foreign corporation can hedge against currency risk. Dean encouraged test takers to practice with foreign currency practice questions and offered to answer any explication requests. He concluded by encouraging test takers to inch by inch, make their series 7 a cinch.