Kaplan Practice Exam Vol1 Exam 1 Q24 - Afternoon

Hi all.

The question asks to validate a statement - the client has a long yen exposure. The statement is:

An alternative to seeling the yen forward to implement a currency hedge would be to buy calls on the USD. This would protect the portfolio from currency risk while still retaining potential currency upside.

In the answer the statement is correct - the guide states buying a call on the USD is the same a buying a put on the yen. My understanding is buying a call on one currency is simultaneously selling a put on the other currency in the pair - is this incorrect?

They have it right and you have it wrong. Buying a call on the USD is similar to buying a put on the yen, not selling a put.