Question

Which of the following is true?

a) If you expect the euro to depreciate, it would be appropriate to buy a euro put option for speculative purposes.
b) Non-U.S. firms can obtain equity financing in the U.S. only by using Yankee stock offerings.
c) Speculators who expect the peso will decline buy futures contracts on pesos.
d) The writer (seller) of a call option is obligated to buy the underlying currency from the buyer of the option at the specified strike price if the option is exercised.

Answer 1

The true statement is a) If you expect the euro to depreciate, it would be appropriate to buy a euro put option for speculative purposes. This action aligns with the expectation of profit from a depreciation in the value of the euro.

Step-by-step explanation:

Among the provided options, the true statement is a) If you expect the euro to depreciate, it would be appropriate to buy a euro put option for speculative purposes. This is because a put option grants the holder the right, but not the obligation, to sell a specific amount of a security at a set price within a specified timeframe. In the context of currency options, if an investor believes that the euro will depreciate against another currency, such as the US dollar, purchasing a put option allows them to profit from the potential decrease in the euro's value.

Option b) is incorrect because non-U.S. firms can raise equity through a variety of means, not just Yankee stock offerings. Option c) is incorrect because speculators expecting the peso to decline would likely sell futures contracts on pesos, not buy them. Option d) is incorrect because the writer (seller) of a call option is obligated to sell the underlying currency, not buy it, if the option is exercised.