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18 A Canadian company expects to make a payment of 1 million British pounds to its British supplier in 1 year and wants to hedge
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A Canadian company expects to make a payment of 1 million British pounds to its British supplier in 1 year and wants to hedge its resulting foreign exchange risk Consider the following alternatives that the company is considering to implement its hedge. 1. Buy a forward contract on 1 million British pounds with 1 year to the delivery date. II. Sell a futures contract on 1 million British pounds with 1 year to the delivery date. III. Buy a put option on 1 million British pounds with 1 year to the expiration date. IV. Buy a call option on 1 million British pounds with 1 year to the expiration date. Which of the following would be the correct method of hedging the company's foreign exchange risk? a. Accept I or IV and reject II and III. b. Accept I or III and reject II and IV. Oc. Accept I or II and reject III and IV. O d. Accept II or III and reject I and IV Step by Step Solution
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