MNCs should hedge receivables using bear spreads only for currencies that are expected to appreciate substantially prior to option expiration.

Question

Quizplus · Accepted Answer

Bear spreads involve selling options with a lower strike price and buying options with a higher strike price, in order to profit from a decrease in the currency's value. Therefore, MNCs should use bear spreads for currencies that are expected to depreciate, not appreciate, prior to option expiration.

MNCs Should Hedge Receivables Using Bear Spreads Only for Currencies