Unformatted text preview: anc were to depreciate from
today’s $0.63/Sf to, say, $0.55/Sf before the exporter receives payment in Swiss
francs. On the other hand, if the Swiss franc were to appreciate from $0.63/Sf to,
say, $0.70/Sf, the U.S. exporter would allow the put option to expire unexercised
and would instead convert the Swiss francs received in payment into dollars at
the new, higher dollar price. The exporter would be protected from adverse price
risk but would still be able to profit from favorable price movements. Review Questions
16–12 What is an option? Define calls and puts. What role, if any, do call and
put options play in the fund-raising activities of the financial manager?
16–13 How can the firm use currency options to hedge foreign-currency exposures resulting from international transactions? Describe the key benefit
and the key drawback of using currency options rather than futures and
forward contracts. S U M M A RY
FOCUS ON VALUE
In addition to the basic corporate securities (bonds, common stock, and preferred stock),
the firm can use various types of hybrid secur...
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