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 that expect to buy foreign currency to finance foreign subsidiaries
C) corporations that expect to collect on a foreign account receivable in one month
D) All of these are correct.

Question

Quizplus · Accepted Answer

Purchasing a currency put option allows the buyer to sell the underlying currency at a predetermined strike price, which can provide protection against a decrease in the value of the currency. In this case, corporations expecting to buy foreign currency to finance foreign subsidiaries may choose to purchase a currency put option to hedge against potential losses due to currency fluctuations. Option A is incorrect because investors who expect to buy a foreign bond typically do not purchase currency put options. Option C is incorrect because corporations expecting to collect on a foreign account receivable typically do not use currency put options to hedge against currency risk. Option D is incorrect because only option B is correct.

The Purchase of a Currency Put Option Would Be Appropriate