How Companies Use Currency Options in Risk Management

Essay from the year 2015 in the subject Business economics - Investment and Finance grade: 77.00 University of Westminster course: Finance and Accounting language: English abstract: This article summarizes the motivations behind the reason why many corporates use (currency) options for risk management. Firstly the paper would generalize the term of Financial Derivatives and how they benefit investors. Furthermore it review a great deal of previous scholar works done on the field of risk management by corporates and on general options. In addition the following case study of the company named ABC using a protective put strategy in order to hedge its investment in BCA is explored in both situation of increase and decrease in share price in order to understand how companies manage risks. Even though options can be an effective tool that helps companies be successful in grow their firm values options can also become worthless due to a minor modification of share price.