A currency 'collar' is:
A) used to set a minimum value for the domestic receivables at the expense of accepting a maximum value
B) created by adding a long put and a short call to an existing long underlying exposure
C) created by adding a short put and a long call to an existing long underlying exposure
D) it is created by adding a long put and a short call to an existing long underlying exposure and is used . to set a minimum value for the domestic receivables at the expense of accepting a maximum value

Question

Quizplus · Accepted Answer

A currency collar is a hedging strategy that involves purchasing a put option and selling a call option to create a range within which the currency exposure is protected. This strategy sets a minimum (floor) and a maximum (ceiling) value for the currency, effectively managing the risk of currency fluctuation. Choice D accurately combines both the strategy involved (adding a long put and a short call) and its purpose (setting a minimum and maximum value for domestic receivables).

A Currency 'Collar' Is