Your US-Based Firm Is Deciding Between Using Currency Futures Contracts or or a Forward

question 23

Multiple Choice

Your U.S.-based firm is deciding between using currency futures contracts or a forward contract with its commercial bank in order to hedge a scheduled dividend from its subsidiary corporation in Germany. The dividend will be repatriated in July, while the currency futures contracts are only available for June or September delivery. Which of the following choices properly hedges the transaction without basis risk?

• A)Long euro future contracts
• B)Short euro future contracts
• C)Forward to sell euros forward in July.
• D)Forward to buy euros forward in July.

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Definitions:

Anchor Stores

Large, prominent retailers within a shopping mall or center that attract a significant number of shoppers, serving as a foundational attraction for the center.

Regional Shopping Center

A large retail complex that provides a wide range of goods and services, typically anchored by one or more department stores and designed to serve a broad geographical area.

Nordstrom

A high-end department store chain known for its customer service and product selection.

Saks Fifth Avenue

A high-end American department store chain known for offering luxury goods and designer apparel.