The purchase of a currency put option would be appropriate for which of the following?
A) Investors who expect to buy a foreign bond in one month.
B) Corporations who expect to buy foreign currency to finance foreign subsidiaries.
C) Corporations who expect to collect on a foreign account receivable in one month.
D) all of the above

Question

Quizplus · Accepted Answer

A currency put option provides the buyer with the right, but not the obligation, to sell a specific amount of currency at a predetermined exchange rate, known as the strike price, on or before a specific expiration date. This makes it an appropriate choice for corporations who expect to buy foreign currency to finance foreign subsidiaries, as they can protect themselves against potential currency fluctuations by buying a put option with a strike price at or below their expected future exchange rate. It is not an appropriate choice for investors who expect to buy a foreign bond or for corporations who expect to collect on a foreign account receivable, as the put option would not provide protection for these scenarios.

The Purchase of a Currency Put Option Would Be Appropriate