CAF-7 · Chapter 10 · Question 5 of 15
A Pakistani textile exporter expects to receive USD 1,000,000 in three months. The exporter is worried that the US Dollar will depreciate against the PKR. To hedge this risk using currency options, the exporter should purchase:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) A Put option on USD
Explanation
A 'Put' option gives the holder the right, but not the obligation, to SELL the underlying currency at a specified strike price. Since the exporter receives USD and needs to sell it for PKR, buying a Put option protects them against the USD falling in value.
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