An MNC wants to hedge against the potential risk that the euro denominating its payables appreciates against the dollar. Yet, it also wants flexibility to benefit by buying euros at the spot rate when payables are due if the euro depreciates by that time. The appropriate hedge for this MNC would be a(n) ____ hedge.
A) money market
B) futures
C) put option
D) call option

Question

Quizplus · Accepted Answer

A call option provides the right, but not the obligation, to buy euros at a predetermined rate, allowing the MNC to hedge against appreciation while benefiting from depreciation.

An MNC Wants to Hedge Against the Potential Risk That