On February 1, Shoemaker Corporation Entered into a Firm Commitment

question 40

Multiple Choice

On February 1, Shoemaker Corporation entered into a firm commitment to purchase specialized equipment from the Okazaki Trading Company for ¥80,000,000 on April 1. Shoemaker would like to reduce the exchange rate risk that could increase the cost of the equipment in U.S. dollars by April 1, but Shoemaker is not sure which direction the exchange rate may move. What type of contract would protect Shoemaker from an unfavorable movement in the exchange rate while allowing them to benefit from a favorable movement in the exchange rate?

• A) Interest rate swap
• B) Forward contract
• C) Call option
• D) Put option

---

Definitions:

Civil Action

A legal proceeding in which one party sues another for a private wrong, such as breach of contract or personal injury, seeking a remedy in the form of damages or specific performance.

Appeal

The process of seeking a higher court's review of a lower court's decision in hopes of reversing or modifying the outcome.

Appeal Court

A higher court that reviews the decision and results of a lower court when a party claims an error was made during the decision-making process.

Jurisdiction

The official power to make legal decisions and judgments, often within a specific geographic area or over certain types of cases.