To Create a Range Forward Contract in Order to Hedge

question 2

Multiple Choice

To create a range forward contract in order to hedge foreign currency that will be received, a company should: choose one)

• A) Buy a put and sell a call on the currency with the strike price of the put higher than that of the call
• B) Buy a put and sell a call on the currency with the strike price of the put lower than that of the call
• C) Buy a call and sell a put on the currency with the strike price of the put higher than that of the call
• D) Buy a call and sell a put on the currency with the strike price of the put lower than that of the call

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Definitions:

Legislative Approval

The formal consent given by a legislative body to enact a proposed piece of legislation into law.

ARMs

Adjustable-Rate Mortgages, which are loans with interest rates that change over time based on market conditions.

Regulation

The act of controlling, governing, or directing according to rules, principles, or laws, usually by a government or regulatory body.

Credit Card

A plastic card issued by a bank or financial services company, allowing holders to borrow funds within a pre-approved limit for purchases or cash withdrawals.