Why Might a Financial Manager Prefer Using Option Contracts Instead

question 64

Multiple Choice

Why might a financial manager prefer using option contracts instead of futures or forward contracts to hedge?

• A) Futures and forwards require a premium be paid up front,while options do not.
• B) Options provide protection against adverse price movements but allow the user to profit if the price of the underlying asset moves favorably.
• C) Options create an obligation to perform,while futures and forwards do not.
• D) Futures and forwards all have greater default risk than options.