XYZ wants to hedge against depreciations of the euro and is also concerned about the price of

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XYZ wants to hedge against depreciations of the euro and is also concerned about the price of oil, which is a significant component of XYZ's costs. However, there is a positive correlation between the euro and the price of oil: The euro appreciates when the price of oil rises. Explain how an exchange option based on oil and the euro might be used to hedge in this case. Discuss.
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Derivatives Markets

ISBN: 978-0321543080

4th edition

Authors: Rober L. Macdonald

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