Your firm is bidding on a large construction contract in a foreign country. This contingent exposure could best be hedged
A)with put options on the foreign currency.
B)with call options on the foreign currency.
C)both a and b, depending upon the specifics ("the rest of the story").
D)with futures contracts.

Question

Quizplus · Accepted Answer

The decision to use put or call options depends on the specifics of the situation, such as the expected direction of the exchange rate movements and the cost of the options. Therefore, the best choice is to use a combination of put and call options to hedge the contingent exposure. Futures contracts, on the other hand, may not be suitable for this situation as they have fixed terms and are subject to margin calls, which could increase the firm's financial risk.

Your Firm Is Bidding on a Large Construction Contract in a Foreign