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Some companies have used currency options to convert dollars into sterling at a known rate two or even three years ahead.
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Some companies have used currency options to convert dollars into sterling at a known rate two or even three years ahead.
Investors can hedge against foreign currency risk by purchasing a currency option put or call. For example, assume that an investor believes that the USD/EUR rate is going to increase from 0.80 to 0.90 (meaning that it will become more expensive for a European investor to buy U.S dollars). In this case, the investor would want to buy a call option on USD/EUR so that he or she could stand to gain from an increase in the exchange rate (or the USD rise).
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