............. refers to the covering of a foreign exchange risk.
Hedging
Firms, banks and investors who hold assets or liabilities in a foreign currency face foreign exchange risk: a change in the exchange rate can alter the home-currency value of what they will pay or receive.
Covering this risk means taking an offsetting position, typically through a forward contract, futures, options or currency swaps, so that a loss on the underlying exposure is matched by a gain on the cover. For example, an importer who must pay dollars in three months buys dollars forward at a rate fixed when the contract is signed. This act of covering exchange risk is called hedging.
Arbitrage is buying a currency in one market and simultaneously selling it in another to profit from a price difference; it seeks riskless profit rather than protection of an existing exposure. Purchasing power parity is a theory that explains the exchange rate through relative price levels. Mint parity is the exchange rate under the gold standard, set by the gold content of two currencies.
Hedging option is correct.
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