Suppose that the exchange rate is €1.25 = £1.00. Options (calls and puts) are available on the Philadelphia exchange in units of €10,000 with strike prices of $1.60/€1.00.
Options (calls and puts) are available on the Philadelphia exchange in units of £10,000 with strike prices of $2.00/£1.00.
For a U.S. firm to hedge a €100,000 receivable,
A) buy 10 call options on the euro with a strike in dollars.
B) buy 10 put options on the pound with a strike in dollars.
C) sell 10 call options on the euro with a strike in dollars.
D) sell 8 put options on the pound with a strike in dollars.
E) both a and b
F) both c and d

Question

Quizplus · Accepted Answer

The Answer of Suppose that the exchange rate is €1.25 = £1.00. Options (calls and puts) are available on the Philadelphia exchange in units of €10,000 with strike prices of $1.60/€1.00.
Options (calls and puts) are available on the Philadelphia exchange in units of £10,000 with strike prices of $2.00/£1.00.
For a U.S. firm to hedge a €100,000 receivable,
A) buy 10 call options on the euro with a strike in dollars.
B) buy 10 put options on the pound with a strike in dollars.
C) sell 10 call options on the euro with a strike in dollars.
D) sell 8 put options on the pound with a strike in dollars.
E) both a and b
F) both c and d

Suppose That the Exchange Rate Is €1