Your U.S.firm has a £100,000 payable with a 3-month maturity.Which of the following will hedge your liability? A)Buy the present value of £100,000 today at the spot exchange rate,invest in the U.K.at i_£. B)Buy a call option on £100,000 with a strike price in dollars. C)Take a long position in a forward contract on £100,000 with a 3-month maturity. D)all of the options

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Quizplus · Accepted Answer

All the options provided (A, B, and C) are valid methods to hedge against the currency risk associated with a £100,000 payable. Option A involves converting dollars to pounds at the current spot rate and investing in the UK, option B involves buying a call option to secure a future exchange rate, and option C involves entering into a forward contract to lock in a specific exchange rate for the future, directly hedging the currency risk.

Your USFirm Has a £100,000 Payable with a 3-Month Maturity