Which statement is true regarding a foreign currency option?

A foreign currency
option gives the holder the obligation to buy or sell foreign currency in the future. A
foreign currency option gives the holder the obligation only sell foreign currency in the
future. A foreign currency option gives the holder the obligation to only buy foreign
currency in the future. A foreign currency option gives the holder the right but not the
obligation to buy or sell foreign currency in the future.
General Feedback
A foreign currency option gives the holder the right but not the obligation to buy or sell
foreign currency in the future.

On December 1, 2018, Keenan Company sold merchandise to Velez Company of

Spain for 150,000 euro. Payment is due on February 1, 2008. Keenan entered into a
forward exchange contract on December 1, 2018, to deliver 150,000 euro on February
1, 2008 for 0.97. Keenan chose to use a foreign currency option to hedge this foreign
currency asset designated as a cash flow hedge. Relevant exchange rates follow:
Spot Rate Option
Premium
December 1, 2018 0.97 0.05
December 31, 2018 0.95 0.04
February 1, 2008 0.94 0.03

Compute the value of the foreign currency option at December 1, 2018.

6,000. 4,500. 3,000. 7,500.
General Feedback
7,500.