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1.A company knows that it is due to receive a certain amount of a foreign currency in four months. What type of option contract is
1.A company knows that it is due to receive a certain amount of a foreign currency in four months. What type of option contract is appropriate for hedging?
ANS: A long position in a four-month put option on the foreign currency can provide insurance against the exchange rate falling below the strike price. It ensures that the foreign currency can be sold for at least the strike price. (or buy a call on the local currency)
please help me to explain what is the answer mean?
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