Question

1) I'm trying to hedge my multinational companies exposure currency fluctuation. Would it be better for me to use options or futures? Why?

2) Does a weak dollar affect inflation? If so, how. If not, why not?

Answer 1

1) It is better to use futures as it is the most common derivative instrument to offset risk. The main reason that companies or corporations use future contracts is to offset their risk exposures and limit themselves from any fluctuations in price.

By locking in a price for which you are able to buy or sell a particular item, companies are able to eliminate the uncertainty associated with expected expenses and profits. Options gives the holder of the option the right but not the obligation to buy a currency into the future at a specific price.

2) Yes a weak dollar affects inflation. As dollar is coming down, the purchasing power of dollar is falling. As, now it will take more dollars to buy same thing, which previously needed fewer dollars. So, this situation is pretty much the same as inflationary trends .