A Forward Contact to Buy US$450 000 for a Planned

question 11

Multiple Choice

A forward contact to buy US$450 000 for a planned purchase transaction of US$600 000 has a hedge ratio of:

• A) 25%.
• B) 75%.
• C) 15%.
• D) 133%.

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Definitions:

Machine Hours

A measure of the operating time of machinery used in production, commonly applied in calculating depreciation or allocating overhead.

Constrained Resource

Refers to the limited capacity or resources a company has which can restrict its ability to produce goods or services.

Profitable Use

The effective and efficient utilization of resources or assets to generate maximum profit.

Special Order Units

Items that are produced or ordered specifically for a particular customer, which may have different pricing or costing compared to regular orders.