Series 7 - General Securities Representative Exam

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A US importer is buying $1,000,000 worth of dry goods from a French Manufacturer. The payment will be made 3 months from now in Euros. To hedge against currency fluctuation, the US importer would do which of the following?

Buy Calls On The Euro Currency
A
Buy Puts On The Euro Currency
B
Buy Calls On The US Dollar
C
Buy Puts On The US Dollar
D

Explanations

Importers buy calls in the foreign currency to hedge currency risk. The importer is concerned that the dollar will lose value against the Euro over the next 3 months. Buying Euro Currency calls will hedge this risk. The Dollar index (DXY) is measured against a basket of multiple foreign currencies and would not hedge strictly Euro exposure

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