Why Might Firms Prefer Hedging with Options Rather Than Forward

question 22

Essay

Why might firms prefer hedging with options rather than forward contracts?

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Definitions:

Accounts Receivable

Represents money owed to a company by its clients or customers for goods or services that have been delivered or used but not yet paid for.

Operating Activities

Business actions directly related to the production, sales, and delivery of a company's goods or services, reflected in its cash flow.

Income Statement

A financial statement that reports a company's revenues and expenses over a specific period, ending with the net earnings or losses.

Operating Activities

Activities directly related to the operating aspect of a business, such as selling products, managing costs, and paying salaries.