Kalons ltd. is a UK-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances?
A) Purchase Canadian dollars forward
B) Purchase Canadian dollar futures contracts
C) Purchase Canadian dollar put options
D) Purchase Canadian dollar call options

Question

Quizplus · Accepted Answer

Purchasing Canadian dollar put options is not appropriate because put options give the right to sell, not buy, Canadian dollars. Kalons needs to hedge against the appreciation of the Canadian dollar, which would require buying or securing the currency at a fixed rate.

Kalons Ltd