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:

Negative Reinforcement

The strengthening of a behavior because it removes or decreases an unpleasant experience or outcome.

Aversive Punishment

A form of punishment that involves introducing an unpleasant or painful stimulus in order to reduce the likelihood of a behavior reoccurring.

Positive Reinforcers

Stimuli that, when introduced following a behavior, increase the likelihood that the behavior will occur again in the future.

Strengthen Behaviors

Techniques used to increase the frequency or likelihood of a desired behavior, often through reinforcement.