Question

A US Corporation has just made a bid on a major project located in UK. If the project is awarded, the company will receive a sizeable down payment in pound upfront. However, it won’t find out for 60 days whether it has won the contract. The best way to protect against currency risk on its bid is for the firm to

Group of answer choices

A)buy a pound call option

B) sell a pound futures contract

C) buy a pound put option

D) buy a pound futures contract

Answer 1

Since the investor is bound to receive pound after 60 days, so it has to protect itself from any devaluation in pound, so it could be protecting itself from any decrease in the value of pound after 60 days by selling of the pound in futures,or buying a put option for pound that would protect him against any decline in the value of pound.

Buying a call option and buying a future is a sign of going bullish so they are not applicable here because he is protecting himself against any decline in the value of pound.

So the correct answer would be option B) selling a pound future contract and option C) buying a pound put option.