Explain and provide examples of using foreign exchange currency options to hedge
Foreign exchange currency options are often used in the international transaction where there is exposures related to fluctuations in rates of different foreign currencies.
Currencies options are derivatives that allows an individual to enter the underlying market at a specific price and it can be said that it allows the holder to sell or buy a particular currency at a particular date at a predetermined rate .It expire after a certain period as other derivatives instrument.
For example, If an indian importer wants to buy some items from an american manufacturer at a particular future date.The transaction is to carried out in American Dollars . The indian importer will create a hedge by purchasing currency options in american dollars so it will be protected against any appreciation in american dollars so the overall currency exposure of the indian importer is hedged against any adverse movement in american dollars.
Explain and provide examples of using foreign exchange currency options to hedge
Q3) If you have a long position in a foreign currency, you can hedge with A) a short position in a currency forward contract. B) borrowing in the domestic and foreign money markets. C) a short position in an exchange-traded futures option. D) a short position in foreign currency warrants Q4) If you owe a foreign currency denominated debt, you can hedge with A) a long position in a currency forward contract, or buying the foreign currency today and investing...
A U.S. corporation is considering using currency options and currency futures contracts. Explain to this corporation the advantages and disadvantages of each contract to hedge its exposure in Mexican pesos. Which derivative contract should the corporation use to hedge projects that are anticipated but not committed?
To hedge a____ in a foreign currency, a firm may ____ a currency futures contract for that currency. O receivable: sell O receivable; purchase O payable: sell O payable: purchase ○ A and D are both correct
The main technique to manage accounting exposure is a balance sheet hedge. forward market hedge. foreign currency options hedge. square position. money market hedge.
How do foreign currency exchange rates affect revenue? Give numerical examples to prove your points.
Sri Lanka is a poorcountry. What is the impact on the market for foreign-currency exchange in Sri Lanka, if Sri Lanka started to export more tea? (5 points) What is the relationship between loanable funds market and market for foreign-currency exchange? (5 points) Is budget surplus good for an economy? (5 points) 4.Using graphs, explain the implication of an economy’s budget surplus on the real exchange rate. (10 points)
Explain the difference between foreign currency options and forwards. Explain when either might be most appropriately used.
using the market for loanable Funds and the market for Foreign Currency exchange, How does an investment tax credit affect national saving, domestic investment, net capital outflow, the interest rate, the exchange rat, and balance? the trade
Foreign Exchange Market The foreign exchange market serves two main functions. The first is to convert the currency of one country into the currency of another, and the second is to provide some insurance against foreign exchange risk. When two companies are trying to provide some insurance against foreign exchange risk, they can either exchange the currency immediately, which is caled spot exchange, or at a specific date in the future, which is called a forward exchange rate.
Demand for a country's currency in the foreign exchange market is given by where XR is the US dollar price of the currency, and A is the quantity of the currency. Supply for Country A's currency in the foreign exchange market is given by The central bank of the country fixes the exchange rate at 62 USD. The central bank needs to sell A = ________ in the foreign exchange market to maintain the fixed exchange rate. [Fill in the...