Analyze the main reasons why a company might prefer a foreign currency option ov
ID: 2424138 • Letter: A
Question
Analyze the main reasons why a company might prefer a foreign currency option over a forward contract in hedging a foreign currency firm commitment. In contrast, analyze the main reasons why a company might prefer a forward contract over an option in hedging a foreign currency asset or liability. Determine the option (i.e., a foreign currency option or a forward contract) that you consider to be more effective. Provide a rationale for your response.
Assume that all the companies in the world use International Financial Reporting Standards (IFRS). Determine at least two (2) obstacles to the worldwide comparability of financial statements, and provide one (1) strategy to overcome the obstacles in question. Provide support for your rationale.
Explanation / Answer
Q ) Analyze the main reasons why a company might prefer a foreign currency option over a forward contract in hedging a foreign currency firm commitment.
A ) Advantages of why Companies prefer Foriegn Currency Option :
_____________________________________________
Q ) analyze the main reasons why a company might prefer a forward contract over an option in hedging a foreign currency asset or liability.
A ) Advantages of why Companies prefer Forward Contract Option :
Q ) Determine at least two obstacles to the worldwide comparability of financial statements?
A ) The 2 obstacles to the worldwide comparability of financial statements are :
1. Translation : Its highly difficult to translate the exact the sentences int a non-english language without causing changes in the meaning.
2. Culture : There are many diversities in culture that can influence the banking system of the particular country.Those difference in their values might lead them to diffirence in intrepreting teh pre-set common set of standards.