If a Firm Is Due to Be Paid in Euros

question 53

Multiple Choice

If a firm is due to be paid in euros in two months,to hedge against exchange-rate risk the firm should ________ foreign exchange futures ________.

• A)sell;short
• B)buy;long
• C)sell;long
• D)buy;short

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Definitions:

Inelastic Demand

A situation where the demand for a good or service is relatively insensitive to changes in price, meaning that percentage changes in price lead to smaller percentage changes in the quantity demanded.

Substitution Effect

The substitution effect occurs when consumers replace more expensive items with less costly alternatives as prices change.

Diminishing Returns

A principle stating that if one factor of production is increased while others are held constant, the additional output generated will eventually decrease.

Government Subsidies

Financial support provided by the government to businesses, individuals, or other entities, typically to encourage certain activities or reduce costs.