If a corporation hedges payables with currency call options, it will ____ if the value of the foreign currency is ____ than the exercise price when the payables are due.

Question

Quizplus · Accepted Answer

A corporation will exercise the call option if the foreign currency's value is greater than the exercise price, as it allows them to purchase the currency at a lower rate. Conversely, they will let the option expire if the currency's value is less than the exercise price, as it would be cheaper to buy the currency directly from the market.

If a Corporation Hedges Payables with Currency Call Options, It