If a U.S. importer that imports skin care products from Japan expects the Japanese Yen to appreciate against the U.S. dollar in 3 months' time when Yen payables need to be made, what can he/she do to hedge the currency risk?

a.        Buy a put option on Yen

b.        Sell a put option on Yen

c.        Buy a call option on Yen

d.        Sell a call option on Yen

e.        Any of the above will do

Option C.

Call options refers to the financial contracts in which the buyer has the right, but not obligation, to purchase a bond, commodity, stock, or any other instrument at a certain price within the particular time. Generally, a call buyer gains while the underlying asset rises in price.

When the foreign currency appreciates, an investor buys a call option to mitigate the exchange rate risks. 

If the foreign currency remains the same or depreciates, the buyer (i.e. investor) of the call option might lose money.

Step-by-step explanation

In the given scenario, a U.S importer is importing products from Japan whose currency is going to rise or appreciate in 3 months against the Dollar (i.e.  U.S.D)

So to reduce the exchange rate risks, the utilization of options for the objectives or purposes of hedging is straightforward. The importer needs to hedge against the yen appreciation by buying or purchasing a call option which provides the right but not obligation to purchase yen until maturity, at a certain price. 

The simple or general rule to buy or sell any call or put option is to maximize the profits by buying at lowest and selling at highs. A put option is applied or exercised when there is expected decline in the foreign currency which is exactly the reverse or opposite of the call option. 

Therefore, the importer should buy the call option to hedge the currency risks.

Hence, option C is correct.