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 the 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

This statement is false because firms often prefer currency options to forward contracts when the transaction they are hedging might not take place. Currency options provide more flexibility in terms of when they can be exercised, whereas forward contracts require the transaction to take place at a specific date in the future.

Which of the Following Statements Regarding Currency Options Is FALSE