Why would a company prefer a foreign currency option over a forward contract in hedging a foreign currency firm commitment? Why would a company prefer a forward contract over an option in hedging a foreign currency asset or liability?
Answer to relevant QuestionsHow does a company determine the fair value of a foreign currency forward contract? How does it determine the fair value of an option?What factors create a foreign exchange gain on a foreign currency transaction? What factors create a foreign exchange loss?Assuming that MNC entered into a forward contract to sell 10 million South Korean won on December 1, 2011, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2011 resulting ...On December 1, 2011, Dresden Company (a U.S. company located in Albany, New York) purchases inventory from a foreign supplier for 60,000 local currency units (LCU). Dresden will pay in 90 days after it sells this ...On November 1, 2011, Ambrose Company sold merchandise to a foreign customer for 100,000 FCUs with payment to be received on April 30, 2012. At the date of sale, Ambrose entered into a six-month forward contract to sell ...
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