A call option is often employed to protect a bank or bank customer against losses from falling currency prices.

Question

Quizplus · Accepted Answer

A call option gives the holder the right, but not the obligation, to buy an underlying asset at a predetermined price (strike price) within a specified period of time. It is a bullish strategy used to take advantage of rising prices. Therefore, it cannot protect against losses from falling currency prices. Instead, a put option can be used for this purpose, as it gives the holder the right to sell the underlying asset at a predetermined price, providing downside protection.

A Call Option Is Often Employed to Protect a Bank