Which of the following describes what a company should do to create a range forward contract in order to hedge foreign currency that will be received?
A) Buy a put and sell a call on the currency with the strike price of the put higher than that of the call
B) Buy a put and sell a call on the currency with the strike price of the put lower than that of the call
C) Buy a call and sell a put on the currency with the strike price of the put higher than that of the call
D) Buy a call and sell a put on the currency with the strike price of the put lower than that of the call

Question

Quizplus · Accepted Answer

The company wants to ensure that the price received for the foreign currency will be between K₁and K₂.It does this by buying a put option with strike price K₁ and selling a call option with strike price K₂.

Which of the Following Describes What a Company Should Do