Question

Gives the holder the right, but not the obligation, to buy the underlying asset for a stated price over a stated period. Suppose you are going to receive a unit of underlying asset (e.g. 10 ounces of Gold or Euro 100.000) in a year. The price of the underlying asset is volatile, and you want to lock in the certain dollar amount now, regardless of the price in one year. What can you do now?

Answer 1

To lock in a certain dollar amount now and protect yourself from the price volatility of the underlying asset, you can use a financial contract called an option.

Step-by-step explanation:

To lock in a certain dollar amount now and protect yourself from the price volatility of the underlying asset, you can use a financial contract called an option. Specifically, you can purchase a call option, which gives you the right, but not the obligation, to buy the underlying asset at a predetermined price (also known as the strike price) within a specified time period. By buying a call option, you can guarantee the price at which you can buy the underlying asset in the future, regardless of its market price. This allows you to hedge against the risk of the price of the asset decreasing and ensures that you will pay a certain dollar amount for the asset when you receive it in a year.