A foreign currency ________ option gives the holder the right to ________ a foreign currency, whereas a foreign currency ________ option gives the holder the right to ________ an option.

Question

BlackTom AI · Accepted Answer

Let's analyze each option step by step to see how well they describe the standard definitions of currency options.
Option A: 'A. call, sell, put, buy' — A currency call option gives the holder the right to buy the foreign currency, not to sell it. So 'call, sell' misstates the fundamental action of a call. Likewise, a currency put option gives the right to sell the foreign currency, not to buy it, making the 'put, buy' portion incorrect. Overall this option mixes up the directions of the two basic option types.
Option B: 'B. call, buy, put, sell' — This aligns with standard definitions: a call option gives the holder the right to buy the foreign currency, and a put option gives the holder the right to sell the foreign currency. The structure here correctly pairs 'call' with 'buy' and 'put' with 'sell'. This option accurately reflects the conventional rights associated with call and put options in the context of foreign currency.
Option C: 'C. put, hold, call, release' — This phrasing introduces terms ('hold', 'release') that are not conventional descriptors of option rights in finance. It fails to correctly describe the actions associated with call and put options, leading to a misleading statement about their rights.
Option D: 'D. none of the above' — Since Option B accurately describes the standard rights of call and put options, declaring none of the above would be incorrect. This option would only be true if none of A, B, or C were correct, which is not the case here because B is correct.
In summary, option B correctly assigns the rights of call and put options (buy for call, sell for put), while the other options misstate or misuse the terminology, leading to incorrect interpretations of how foreign currency options function.

A foreign currency option gives the holder the right to a foreign currency, whereas a foreign currency option gives the holder the right to an option.

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