Question

The risk here is that the Dollar will fall against the Yen; this is the same as the Yen strengthening against the Dollar. Thus, an equivalent hedge would be to buy Japanese Yen Calls. If the Yen appreciates against the Dollar, the gain on the Yen Calls would offset any loss on the Dollars received in payment. The other answer choice which is not listed is to buy Dollar PUTS because your worry is the DOLLAR IS GOING TO DECREASE. SO THE JAPANESE CALL would be the other answer since the YEN WILL APPRECIATE AGAINST THE DOLLAR IF THE DOLLAR FALLS

1) Buy Japanese Yen Calls
2) Buy Dollar PUTS

Answer 1

Hedging is a financial transaction used to protect against currency risks. Buying Japanese Yen Calls can serve as an equivalent hedge to protect against the risk of the Dollar falling against the Yen.

Step-by-step explanation:

Hedging is a financial transaction used to protect against currency risks. In this case, buying Japanese Yen Calls can serve as an equivalent hedge to protect against the risk of the Dollar falling against the Yen. If the Yen appreciates against the Dollar, the gain on the Yen Calls would offset any loss on the Dollars received in payment. Another option, not listed, would be to buy Dollar PUTS in order to hedge against the risk of the Dollar decreasing.