For an investor who starts with dollars and wants to end up with dollars, which of the following choices is an example ofspeculating in the FX market?Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forwardexchange contract to buy the foreign currency.Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forwardexchange contract to buy dollars.Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and then buydollars at the future spot rate.Buy a dollar-denominated financial asset.

In financial market, spot rate refers to the immediately settling price of a financial instrument.…

For an investor who starts with dollars and wants to end up with dollars, which of the following choices is an example of speculating in the FX market? O Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy the foreign currency. O Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy dollars. O Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and then buy dollars at the future spot rate. Buy a dollar-denominated financial asset.

For an investor who starts with dollars and wants to end up with dollars, which of the following choices is an example of speculating in the FX market? O Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy the foreign currency. O Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy dollars. O Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and then buy dollars at the future spot rate. Buy a dollar-denominated financial asset.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter18: Long-term Debt Financing

Section: Chapter Questions

Problem 2SBD

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A price-taker in the foreign exchange market is a hedger who wants to avoid risk. a speculator who buys a currency at the current exchange rate, hoping that it will appreciate. a market participant who takes the current exchange rate to be the equilibrium exchange rate. a market participant who buys and sells currencies at the exchange rates quoted by large commercial banks.
To hedge payables, the firm will purchase a currency call option on the payable foreign currency. The firm can use the call option to buy foreign currency at a specified price. Why should the company, in this case, purchase a call option than a Forward contract? Maybe to make it easy on me, you can illustrate the answer by highlighting the situations suitable for options and Forward contracts. For example, "when this situation occurs....., then that hedging we should use .... because of XYZ reasons/effects on profitability".
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