A firm that has a sum of money denominated in a foreign currency that plans to later convert it to dollars could hedge by which of the following methods. Explain why A. a call on the foreign currency B. a long futures or forward on the foreign currency C. a short put on the foreign currency futures D. all of the above E. none of the above
A firm that has a sum of money denominated in a foreign currency that plans to later
convert it to dollars could hedge by which of the following methods. Explain why
A. a call on the foreign currency
B. a long futures or forward on the foreign currency
C. a short put on the foreign currency futures
D. all of the above
E. none of the above
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I don't understand when you say that the call option or short option will go in the direction of dollar only, why would it go in the direction of dollar, dollar value can also go down so it can go in the opposite direction also?. Moreover, shouldn't the answer be B because if we have to convert a currency into dollar later then we are unsure about the price now if it will go up or down therefore, wouldn't we be buying a futures contract as it would lock a specific price for us so later it wouldn't affect us if the price goes up or down?
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