When Choosing Between Forwards and Futures in Hedging a Transaction

question 42

True/False

When choosing between forwards and futures in hedging a transaction exposure to currency risk, the benefits of a higher quality hedge with a forward contract must be weighed against the transactions costs of the forward contract.

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Definitions:

Bond Indenture

A legal contract between the issuer of bonds and the bondholders, detailing the terms of the bond issue, such as interest rates and maturity dates.

Fiscal Year

A 12-month period used by governments and businesses for accounting and financial reporting, which may or may not align with the calendar year.

Present Value

The discounted value of a future cash flow, taking into account a specific rate of interest.

Market Rate

The current price or rate at which a good or service can be bought or sold in a given market.