J&L Co. is a U.S.-based MNC that frequently exports computers to Italy. J&L typically invoices these goods in euros and is concerned that the euro will depreciate in the near future. Which of the following is not an appropriate technique under these circumstances?
A) purchase euro put options.
B) sell euros forward.
C) sell euro futures contracts.
D) sell euro put options.

Question

Quizplus · Accepted Answer

Selling euro put options would involve J&L Co. receiving a premium in exchange for agreeing to buy euros at a predetermined price. This strategy would not protect J&L Co. from the euro depreciating, as they would still be obligated to purchase the currency at the agreed-upon price regardless of the exchange rate at the time. Therefore, this is not an appropriate technique. The other options, purchasing euro put options, selling euros forward, and selling euro futures contracts, all involve locking in an exchange rate to protect against currency fluctuations.

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