Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances?
A) purchase Canadian dollars forward.
B) purchase Canadian dollar futures contracts.
C) purchase Canadian dollar put options.
D) purchase Canadian dollar call options.

Question

Quizplus · Accepted Answer

Purchasing Canadian dollar put options is not appropriate because put options give the holder the right to sell the currency, not buy it. Kalons, Inc. would want to protect against the Canadian dollar appreciating, which would make their imports more expensive, so they would need to secure the ability to buy Canadian dollars at a set rate, not sell them.