Which of the Following Is NOT an Acceptable Hedging Technique

question 6

Multiple Choice

Which of the following is NOT an acceptable hedging technique to reduce risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen?

• A) Import raw materials from Japan denominated in yen to substitute for domestic suppliers.
• B) Pay suppliers from other countries in yen.
• C) Import raw materials from Japan denominated in dollars.
• D) Acquire debt denominated in yen.

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Definitions:

Network Externalities

The effect on a user of a product or service that results from an increase in the number of other users of the same or compatible products or services.

Natural Monopolies

Market conditions where a single firm can supply a good or service more efficiently than any competitor due to economies of scale, hence dominating the market.

Positive Feedback

Put simply, success breeds success, failure breeds failure; the effect is seen with goods that are subject to network externalities.

Marginal Social Benefits

The additional benefits to society as a whole from producing one more unit of a good or service.