Which of the following statements regarding currency options is FALSE?
A)Firms often prefer forward contracts to currency options if the transaction they are hedging might not take place.
B)Currency options are another method that firms commonly use to manage exchange rate risk.Currency options,like stock options,give the holder the right-but not the obligation-to exchange currency at a given exchange rate.
C)Currency forward contracts allow firms to lock in a future exchange rate;currency options allow firms to insure themselves against the exchange rate moving beyond a certain level.
D)Many managers want the firm to benefit if the exchange rate moves in their favor,rather than being stuck paying an above-market rate.

Question

Quizplus · Accepted Answer

The statement "Firms often prefer forward contracts to currency options if the transaction they are hedging might not take place" is false. In fact, firms often prefer currency options over forward contracts in such situations as options provide more flexibility and do not require a commitment to a specific exchange rate.

Which of the Following Statements Regarding Currency Options Is FALSE