Which of the Following Statements Regarding Currency Options Is FALSE

question 41

Multiple Choice

Which of the following statements regarding currency options is FALSE?

• A)Firms often prefer forward contracts to currency options if the transaction they are hedging might not take place.
• B)Currency options are another method that firms commonly use to manage exchange rate risk.Currency options,like stock options,give the holder the right-but not the obligation-to exchange currency at a given exchange rate.
• C)Currency forward contracts allow firms to lock in a future exchange rate;currency options allow firms to insure themselves against the exchange rate moving beyond a certain level.
• D)Many managers want the firm to benefit if the exchange rate moves in their favor,rather than being stuck paying an above-market rate.

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Definitions:

Inventory

The raw materials, work-in-progress products, and finished goods that a company holds with the intent to sell or produce goods.

Operating Activities

Business activities related directly to the operation of the company, such as selling products, manufacturing, and providing services.

Loss on Sale

The financial loss incurred when the selling price of an asset is less than its carrying amount.

Operating Activities

These activities relate directly to the business's primary operations, such as selling goods or services, as opposed to investing or financing activities.