Identifier: C4T7L2 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Calculate ratio- and currency-adjusted expiry cash. 2. Derive a conditional warrant breakeven. 3. Stress underlying and exchange-rate moves jointly.

Prerequisite: C4T7L1.

All prices, ratios, term sheets, credit recoveries and cash dates below are hypothetical teaching assumptions, not current offers. Amounts are TRY unless explicitly marked otherwise. The investor is a hypothetical Turkey-resident individual acting outside a business; all results are before actual tax, which requires issue, acquisition, income-year and legal-status checks. No current eligibility or live listing is asserted.

Mechanics

A warrant may reference a foreign-currency asset while trading and settling inTRY. Read whether the payoff is converted at a floating exchange fixing, a fixed quanto factor or another contractual rule. The warrant trading currency does not itself identify economic currency risk. A foreign underlying gain can be offset by a lower TRY value of its payoff currency. The holder remains exposed to the issuer’s performance and cannot assume the referenced asset is held on the holder’s behalf.

Price and return drivers

For the declared simple floating-FX call, cash per warrant =r ×max(SUSD−KUSD,0) ×F, where F isTRY perUSD at the specified fixing. A conditional breakeven is K +(purchase price +costs per warrant)/(r ×F). It is conditional because futureF is unknown. An unhedged floating-FX payoff has no single guaranteed underlying-price breakeven. FX conversion spreads, different fixing times, holidays and issuer adjustments can further change cash. A put reverses the underlying difference but not the currency factor.

Worked case

Synthetic European cash warrant: USD underlying, KUSD50, r0.1 underlying unit per warrant, floatingF at maturity,90 days, TRY cash two business days later. Buy100 warrants atTRY25, total charges100. At SUSD60 andF32, payoff=0.1 ×10 ×32=TRY32 per warrant; gross3200, paid2500, net600. GivenF32, costs per warrant1 give conditional breakeven50 +26/(0.1 ×32)=USD58.125. This is a synthetic term-sheet result, not the current price or currency rule of a listed warrant.

Adverse case

At expirySUSD40,F32; SUSD50,F32; andSUSD60,F32, net results are−2600,−2600,+600. KeepSUSD60 but reduceF to25: cash per warrant25, net100 ×25−2600=−100. With SUSD55,F30, cash15 per warrant and net−1100. Before expiry, a supplied sale bidTRY23 produces2300−2500−100=−300; it cannot be replaced by today’s intrinsic estimate because the final fixing, time and issuer spread remain unresolved. Different FX observation times add basis risk even when both markets appear to have favorable moves.

Practical use

Read the contractual currency fixing, observation times and quanto or floating rule. Include any separate FX conversion spread and maintain both currency cash records.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Use conditional breakevens to show what must happen under each exchange-rate scenario. A warrant with fixed quanto conversion has different risk and pricing; do not reuse this floating-FX equation. Decline if the issue does not disclose the conversion factor or observation source. Compare a domestic fund or a direct exposure only after matching currency and horizon. Costs and taxes need separate records of acquisition currency amounts, dates, actual conversion rates and income type; this exercise supplies no statutory tax rate.

Practice and references

Exercise: hypothetical put warrant KUSD70, SUSD60 at expiry, r0.05, F30; quantity200, purchaseTRY12, charges100. Solution: Cash per warrant0.05 ×10 ×30=15; gross3000, premium2400, net500. Conditional breakeven atF30 is70 −(12+100/200)/(0.05 ×30)=USD61.6667. A higherUSD underlying hurts this put; a higherF increases a positiveUSD payoff.

Takeaway: Warrant breakeven under floating conversion is conditional on FX; trading currency alone does not describe currency risk. Reference links: product card, formula; glossary: Quanto; Currency conversion; Conditional breakeven. Next: C4T7L3. Topic test.

Sources: Borsa Istanbul: Equity Market Functioning (retrieved 2026-10-26; Continuous trading with market making; warrants and certificates). SPK: Warrants and Investment Institution Certificates Communique VII-128.3 (retrieved 2026-10-26; Articles 3, 4, 6, 7, 13 and 15). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

Shared reference guide