Which of the Following Describes a Perfect Hedge

question 100

Multiple Choice

Which of the following describes a perfect hedge?

• A) On net, the hedger can only make money if prices change.
• B) On net, the hedger can only lose money if prices change.
• C) On net, the hedger can either make or lose money if prices change.
• D) On net, the hedger can neither make nor lose money if prices change.
• E) On net, prices will not change, so hedging is a worthless exercise.

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Definitions:

Prepaid Expenses

Expenses paid in advance and recorded as assets until they are actually used or consumed.

Unearned Revenues

Represents income received by a company for goods or services that are yet to be delivered or performed.

Accrued Revenues

Income earned during an accounting period but not yet received or recorded at the statement date, representing future cash receipts.

Annual Depreciation

The amount of depreciation expense allocated for a fixed asset in one year, based on the asset's useful life and cost.