Which of the Following Statements Regarding Currency Options Is False

question 37

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 the 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:

Pension Fund Investors

Individuals or entities that manage investments made with the contributions to pension funds, aiming for growth to secure benefits for future retirees.

Labor Movement

A social and economic movement promoting workers' rights and interests, often through the formation of labor unions.

Shareholder Proposals

Suggestions or demands made by shareholders that are presented for a vote at a company’s annual meeting, often related to corporate governance or social responsibility issues.

Maximizing Shareholder Value

A company's goal to increase the wealth of its shareholders by improving profitability and potential dividends.