The Purpose of a Hedge on an Identifiable Commitment Where

question 2

Multiple Choice

The purpose of a hedge on an identifiable commitment where the U.S.company is selling goods is to:

• A)​fix the basis of sales revenue to the date of the commitment
• B)​eliminate all exchange gains/losses from the date of commitment to the date of settlement
• C)​fix the basis of cost of goods sold to the date of commitment
• D)​eliminate any exchange gains/losses from the transaction date to the settlement date

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Definitions:

Expected Gain

A calculation or forecast regarding the potential benefits or profits that could be achieved in a specific situation or from a particular action.

Adverse Selection

A situation in insurance and finance where those most likely to produce negative outcomes are more inclined to select into or engage with a service, typically leading to higher costs for insurers or lenders.

Moral Hazard

The situation in which one party takes additional risks because they know they will not bear the full consequences of their actions.

Adverse Selection

A situation where sellers have more information than buyers, leading to high-quality goods and services being squeezed out of the market because they cannot be adequately priced.