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Contingent exposure and its benefits

Describe the contingent exposure and also discuss some of the benefits of using currency options in order to maintain this type of currency exposure.

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Companies can encounter the situation in which they may or may not face the currency exposure. In such situation, a company requires options, and not obligations, in order to buy or sell the given amount of foreign exchange they may or may not receive or have to pay. In case, companies either hedge by using the forward contracts or do not hedge at all, they may face the specific currency exposure.

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