Which of the Following Does Not Represent the Risk from Using

question 119

Multiple Choice

Which of the following does not represent the risk from using forward contracts?

• A) A forward contract is used to hedge receivables, and the spot exchange rate at the expiration of the contract exceeds the contract price.
• B) A forward contract is used to hedge receivables, and the spot exchange rate at the time of expiration of the contract is lower than the contract price.
• C) A forward contract is used to hedge payables, and the spot exchange rate at the time of expiration of the contract is lower than the contract price.
• D) A forward contract is used to hedge payables or receivables, and the amount to be received or paid is canceled.

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Definitions:

Market Supply

The total amount of a specific good or service that is available to consumers, determined by the sum of all individual suppliers' products in the market.

Long Run

A period sufficient for all inputs, including physical capital and labor, to be adjusted in the production process.

Industry Supply Curve

A graphical representation that shows the relationship between the price of a good and the total output of the industry over a period of time.

Marginal Cost Curves

Graphs that depict the cost of producing one additional unit of a good or service, typically showing how costs vary with production volume.