If Interest Rate Parity Exists and Transaction Costs Are Zero

question 12

Multiple Choice

If interest rate parity exists and transaction costs are zero, the hedging of payables in euros with a forward hedge will:

• A) have the same result as a call option hedge on payables.
• B) have the same result as a put option hedge on payables.
• C) have the same result as a money market hedge on payables.
• D) require more dollars than a money market hedge.
• E) have the same result as a call option hedge on payables AND require more dollars than a money market hedge.

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