A hedge constructed using a put foreign currency option would protect you against value losses, but allow, at the same time, the possibly reap value increases in the event the exchange rate moved in your favor.

Question

Quizplus · Accepted Answer

A put option gives the holder the right, but not the obligation, to sell the underlying asset at a predetermined price (strike price) on or before the expiration date. By purchasing a put option on a foreign currency, an investor can protect against potential losses if the exchange rate falls below the strike price. At the same time, the investor can benefit from any appreciation in the currency because they are not obligated to sell at the strike price. Therefore, this statement is true.

A Hedge Constructed Using a Put Foreign Currency Option Would