It costs $500,000 to buy puts that can hedge 25 million euros that will be paid to your US-dollar company in 1 year. These puts expire in 1 year and have an exercise price of $1.24: 1. If you buy these puts: The least that you will receive is $30.5 million The least that you will receive is $30.5 million but the most that you will receive is $31.5 million You have locked in a value of $30.5 million regardless of the change in exchange rates A more effective hedge would have been to buy calls on the euro