Question Details

When would a U.S. firm consider purchasing a call option 



1. Hedging With Currency Options. When would a U.S. firm consider purchasing a call option on
euros for hedging? When would a U.S. firm consider purchasing a put option on euros for
hedging?

2. Hedging with Currency Derivatives. Assume that the transactions listed in the first column of
the following table are anticipated by U.S. firms that have no other foreign transactions. Place an
“X” in the table wherever you see possible ways to hedge each of the transactions.
a. Georgetown Co. plans to purchase Japanese goods denominated in yen.
b. Harvard, Inc., sold goods to Japan, denominated in yen.
c. Yale Corp. has a subsidiary in Australia that will be remitting funds to the U.S. parent.
d. Brown, Inc., needs to pay off existing loans that are denominated in Canadian dollars.
e. Princeton Co. may purchase a company in Japan in the near future (but the deal may not go
through).




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