A speculator should buy a put option on a currency if they believe the rate of exchange will decrease in the future. Select one: True False

Answer Analysis

1. Understanding Put Options: A put option gives the holder the right, but not the obligation, to sell a specific amount of an asset (in this case, a currency) at a predetermined price (strike price) within a specified time frame.

2. Speculator's Belief: If a speculator believes that the rate of exchange will decrease, this means they anticipate the currency will lose value in the future.

3. Financial Strategy: Purchasing a put option when expecting a decline allows the speculator to sell the currency at the higher strike price, thus profiting from the difference if the market value drops below the strike price.

Final Answer

True. A speculator should buy a put option on a currency if they believe the rate of exchange will decrease in the future.