ACCA · Question 15 · Risk Management
Section A
TitaniumTech imports rare-earth metals and frequently faces foreign exchange transaction risk. The treasury team is debating whether to use forward exchange contracts or currency options to hedge a large upcoming payment.
Which of the following is a distinct advantage of using a currency option over a forward contract?
Answer options:
Options are legally binding obligations to exchange currency, providing absolute certainty.
Options do not require an upfront premium to be paid.
Options allow the buyer to benefit from favorable exchange rate movements.
Options are always traded over-the-counter (OTC) and customized to exact dates.
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