In the Context of Managing Exchange Rate Risks, Which of the Following

question 4

Multiple Choice

In the context of managing exchange rate risks, which of the following statements is true of an option?

• A) An option is similar to a forward contract that does not allow for purchase of currency from a bank.
• B) A trader uses an option to buy and sell currencies at different exchange rates on the same day.
• C) A trader planning to purchase an option is compulsorily required to couple a spot transaction with a forward transaction.
• D) Even after purchasing an option, it is not an obligation to buy a certain amount of currency at a given exchange rate.

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Definitions:

Paying Taxes

The mandatory financial charge or other levy imposed on an individual or a legal entity by a governmental organization in order to fund government spending and various public expenses.

Cash Outflow

The movement of money out of a business, resulting from expenses or investments.

Accounts Receivable

Outstanding amounts due from clients to a company for products sold or services utilized, awaiting payment.

Cash Collected

The total amount of money received by a company during a specific period.