Using Options to Hedge Foreign Currency Exposures
The Philadelphia Stock Exchange (PHLX) offers ex-change-traded options contracts on the Canadian dollar, Japanese yen, and several major European currencies
Options allow an American company making a transaction denominated in a foreign currency to protect against the risk of adverse exchange rate movements while still preserving the possibility of profiting if exchange rate movement are favorable
One difficulty, however, is matching the size of the transaction to the size of the option(s) purchased since a perfect match is relatively rare
- 1994, HarperCollins Publishers