The True Cost of Hedging Foreign Currency Risk Is the Difference

question 32

True/False

The true cost of hedging foreign currency risk is the difference between the forward rate and the expected spot rate.

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Definitions:

Foreign Currency Option

A financial derivative that gives the holder the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date.

Fair Value

The cost at which one could sell an asset or assume a liability in a structured exchange with market participants on the valuation date.