Moffet Manufacturing Wants the Right to Sell a Foreign Currency

question 38

Multiple Choice

Moffet Manufacturing wants the right to sell a foreign currency at a specified price at any time up to a specified date. Moffet most likely needs a ________.

• A) forward premium
• B) forward discount
• C) call option
• D) put option

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Definitions:

Inflation Rate

The rate at which the general level of prices for goods and services is rising, hence, eroding purchasing power.

Real Rate of Return

The rate of return on an investment after adjusting for inflation, showing the actual increase in purchasing power.

Real Rate

The interest rate adjusted for inflation, representing the real cost of borrowing or the real yield on an investment.

Expected Inflation

The rate at which it is forecasted that the general level of prices for goods and services will rise over a period of time.