Which of the Following Statements Regarding Currency Options Is False

question 1

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 favour, rather than being stuck paying an above-market rate.

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