Why Is a Currency Option Sometimes Preferred to a Forward

question 33

Multiple Choice

Why is a currency option sometimes preferred to a forward market hedge?

• A)It is an optional contract,so that the company could not exercise it and be able to benefit from upside swings in the foreign currency value.
• B)The rates are cheaper.
• C)They are available for longer periods.
• D)The IRS favors them for tax credits when they are exercised.

---

Definitions:

Valence Shell Electron Pair Repulsion

A theory used to predict the geometry of individual molecules based on the repulsion between electron pairs in the valence shell of an atom.

Electron Pairs

Two electrons occupying the same orbital in an atom or molecule, typically forming a covalent bond between atoms.

Hydrogen Sulfide

A toxic, flammable gas with the formula H2S, characterized by a foul smell of rotten eggs, and found in many natural and industrial processes.

Molecule Shape

The geometric arrangement of atoms within a molecule, determining its chemical reactivity and physical properties.