Question

To hedge a foreign currency receivable,

A. buy call options on the foreign currency with a strike in the domestic currency.

B. buy put options on the foreign currency with a strike in the domestic currency.

C. sell call options on the foreign currency with a strike in the domestic currency.

D. sell put options on the foreign currency with a strike in the domestic currency.

Answer 1

The correct answer is option B

• To hedge a foreign currency receivable is buy put options on the foreign currency with a strike in the domestic currency
• if the currency value is getting down (depreciate). our put option allowing to selling the currency for the exersise price.
• if hedge a foreign currency payable,buy call options on the foreign currency with a strike in the domestic currency. here the value of currency is appreciating buy the currency at the exersise price of call