Options - are contracts that give the holder the right, not obligation to buy or sell the...

60.1K

Verified Solution

Question

Finance

Options - arecontracts that give the holder the right, not obligation to buy orsell the underlining asset at a specific price and time.These canbe used as hedging strategies and speculation. How and why areoptions used to protect holdings of corporations? Also forInvestors? Provide an example along with an advantage anddisadvantage along with your opinion on them.

Answer & Explanation Solved by verified expert

4.1 Ratings (612 Votes)

As rightly said options are contracts that give the holder the right but not the obligation to buy or sell the underlying asset at a specific price and time and are used by organizations as well as the investors for speculating as well as for hedging purpose The ways in which corporations use options to protect the holding companies is as follows 1 Forex risk reduction There could be a case that a holding company of a parent company might be located in a different company In this way the profits received could be correlated with the exchange rate between the two countries So the forex fluctuations could lead to the fluctuating profits for the parent company To hedge this risk the parent company may get into the respective options See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member