An Exporter Who Is to Receive Payment in Foreign Currency

question 8

Multiple Choice

An exporter who is to receive payment in foreign currency in three months and who wants to engage in "hedging" would __________ the foreign currency on the three-Months forward market in order to protect himself/herself from __________ of the Foreign currency.

• A) buy; an appreciation
• B) buy; a depreciation
• C) sell; an appreciation
• D) sell; a depreciation

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Definitions:

Put Option

A financial contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Call Option

A fiscal arrangement that permits the owner to optionally buy a stock, bond, commodity, or another asset at a pre-specified price within a certain period, without being obliged to do so.

Specified Price

A designated price set for the execution of a transaction in securities, contracts, or a commercial agreement.

Options Contract

A financial agreement granting the buyer the opportunity, but not the obligation, to buy or sell an asset at a specific price on or before a certain date.