Fluor Corporation has just made a French euro bid on a major project located in France.It won't find out for 60 days whether it has won the contract.There will be a 10% signing bonus payable to the winner in euros.The best way to protect against currency risk on its bid is for Fluor to

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The best way to protect against currency risk on the bid is to buy a euro put option. This will give Fluor the right, but not the obligation, to sell euros at a predetermined price (strike price) at a future date. If the euro depreciates against the US dollar, Fluor can exercise the put option and sell euros at the higher strike price, protecting itself from the currency risk. The cost of the put option is the premium paid, which is essentially an insurance premium. Selling a euro futures contract or call option would expose Fluor to unlimited losses if the euro appreciates, while selling a futures contract would require Fluor to deliver euros at a predetermined price, regardless of the spot price at the time of delivery.

Fluor Corporation Has Just Made a French Euro Bid on a Major