Question

Answer question 4 based upon the following information: An American trader has to make a foreign currency payment in six months on imported goods that have already been received. The most appropriate hedge against currency risk is provided by Q4. a. Selling foreign currency futures contracts. b. Buying foreign currency futures contracts. c. Buying call options on foreign currency d. Buying put options on foreign currency. Answer question 5 based upon the following information: An American company has bid on a foreign contract. If the company wins the contract then it will have an inflow of foreign currency in six months. The company's managers believe that there is a 50% chance of winning the contract. The most appropriate hedge against currency risk is provide Q5. a. Selling foreign currency futures contracts. b. Buying foreign currency futures contracts c. ing call options on foreign currency d. Buying put options on foreign currency

Answer 1

4.

As payment to be made in 6 months is certain, it is better to enter futures contract, as in that one does not need to pay premium,

So,

Option A is correct

Selling foreign currency futures contract.

5.

As there is 50% chance of winning the contract, it is better to enter option contract, as it won't make any obligation in future

So,

Option D is correct

Buying put options on foreign currency