By using options a firm can (at a cost)protect against increases in raw material prices,while continuing to benefit from price decreases.

Question

Quizplus · Accepted Answer

Options such as call options can be used to protect against increases in raw material prices, while still allowing the firm to benefit from price decreases. This comes at a cost, as the firm must pay a premium for the option.

By Using Options a Firm Can (At a Cost)protect Against