If a firm hedges a future purchase of euros by purchasing a call option, the firm ________ the potential cost but will benefit if the euro ________.

Question

Quizplus · Accepted Answer

By purchasing a call option, the firm is capping the potential cost they could face if the euro appreciates. However, if the euro does appreciate, the firm will benefit because they have the option to purchase euros at the lower strike price.

If a Firm Hedges a Future Purchase of Euros by Purchasing