To Avoid Influencing Divisional Hedging Decisions, the Corporate Treasury Should

question 1

True/False

To avoid influencing divisional hedging decisions, the corporate treasury should charge operating divisions the same price for a currency hedge (such as a forward contract) regardless of when the hedge is executed.

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Definitions:

Fixed Cost

Expenses that do not change with the volume of production or sales, such as rent, salaries, and insurance.

Variable Costs

Costs that move in parallel with the rate of goods or services output.

Sensitivity Analysis

The study of how the variation in the output of a model can be attributed to different variations in the inputs of the model, used to predict the impact of changes in economic variables.

Earnings Before Taxes

The income a company generates before taking into account the income tax expense.