Question

If Salerno Inc. desires to lock in a minimum rate at which it could sell its net receivables in Japanese yen but wants to be able to capitalize if the yen appreciates substantially against the dollar by the time payment arrives, the most appropriate hedge would be:

Answer 1

The most appropriate hedge for the Salerno company would be:

• Purchasing put options.

Step-by-step explanation:

Here, it is given that a company Salerno desires to get locked at a minimum rate so that at that level it could sell in Japanese yen its all non receivables and later if the yen appreciates substantially against the dollar values when the payment time arrives,

Then

The most appropriate hedge for the Salerno company would be:

• Purchasing put options.

Purchasing put options: A put option is a term which means that it gives the owner or the main holder all the rights of selling an asset to a different party at a price which is decided by him and at a specified date which he will be deciding. so, basically he owns all the rights associated with it.

It has also been finalized that it creates a negative image of it in the future value of it in the market stock exchange.