The statement is **True**.

Derivatives, such as forwards, futures, and options, are financial instruments that derive their value from an underlying asset, in this case, foreign currencies. They can be effectively utilized to hedge against foreign currency risk.

1. **Forwards**: These are contracts that obligate one party to buy, and the other to sell, a specific amount of currency at a predetermined rate on a specific future date. They are customized agreements typically used by companies to manage the risk of currency fluctuations.

2. **Futures**: Similar to forwards, futures are standardized contracts traded on an exchange that require the exchange of a specified amount of currency at a specified price on a set date. They provide liquidity and are useful for hedging risks.

3. **Options**: Currency options give the buyer the right, but not the obligation, to buy or sell currency at a specified price before a certain date. This flexibility allows businesses to hedge against adverse currency movements while still having the opportunity to benefit from favorable changes.

Thus, all these instruments help manage and mitigate foreign currency risk exposure effectively.

Question

The statement is **True**.

Derivatives, such as forwards, futures, and options, are financial instruments that derive their value from an underlying asset, in this case, foreign currencies. They can be effectively utilized to hedge against foreign currency risk.

1. **Forwards**: These are contracts that obligate one party to buy, and the other to sell, a specific amount of currency at a predetermined rate on a specific future date. They are customized agreements typically used by companies to manage the risk of currency fluctuations.

2. **Futures**: Similar to forwards, futures are standardized contracts traded on an exchange that require the exchange of a specified amount of currency at a specified price on a set date. They provide liquidity and are useful for hedging risks.

3. **Options**: Currency options give the buyer the right, but not the obligation, to buy or sell currency at a specified price before a certain date. This flexibility allows businesses to hedge against adverse currency movements while still having the opportunity to benefit from favorable changes.

Thus, all these instruments help manage and mitigate foreign currency risk exposure effectively.

Knowee AI · Accepted Answer

The statement is **True**.

Derivatives, such as forwards, futures, and options, are financial instruments that derive their value from an underlying asset, in this case, foreign currencies. They can be effectively utilized to hedge against foreign currency risk.

1. **Forwards**: These are contracts that obligate one party to buy, and the other to sell, a specific amount of currency at a predetermined rate on a specific future date. They are customized agreements typically used by companies to manage the risk of currency fluctuations.

2. **Futures**: Similar to forwards, futures are standardized contracts traded on an exchange that require the exchange of a specified amount of currency at a specified price on a set date. They provide liquidity and are useful for hedging risks.

3. **Options**: Currency options give the buyer the right, but not the obligation, to buy or sell currency at a specified price before a certain date. This flexibility allows businesses to hedge against adverse currency movements while still having the opportunity to benefit from favorable changes.

Thus, all these instruments help manage and mitigate foreign currency risk exposure effectively.

Forwards, futures and options are examples of derivatives that can be used to hedge against foreign currency risk exposure. Group of answer choicesTrueFalse

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Forwards, futures and options are examples of derivatives that can be used to hedge against foreign currency risk exposure.

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