On March 1,1998,Bechtel submits a franc-denominated bid on a project in France.Bechtel will not learn until June 1 whether it has won the contract.What is the most appropriate way for Bechtel to manage the exchange risk on this contract?
A)sell the franc amount of the bid forward for U.S.dollars
B)buy French francs forward in the amount of the contract
C)buy a put option on francs in the amount of the franc exposure
D)sell a call option on francs in the amount of franc exposure

Question

Quizplus · Accepted Answer

Buying a put option on francs allows Bechtel to hedge against the risk of the franc depreciating without obligating them to execute the option if the exchange rate moves favorably. This provides flexibility and protection against exchange rate fluctuations.

On March 1,1998,Bechtel Submits a Franc-Denominated Bid on a Project