63sf to say 055sf before the exporter receives payment

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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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