A firm wants to hedge a potential transaction but is also concerned about the possibility that it may not take place.In this case it is better to hedge potential risks using:

Question

Quizplus · Accepted Answer

Options give the firm the right, but not the obligation, to buy or sell the currency at a predetermined exchange rate at a future date. This allows the firm to hedge against potential losses if the transaction does occur, while also having the flexibility to not exercise the option if the transaction falls through. Therefore, options are the best choice to hedge potential risks when the firm is uncertain about the likelihood of the transaction taking place.

A Firm Wants to Hedge a Potential Transaction but Is