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Compare the Differences Between Hedging Using Forward Contracts and Hedging

question 3

Essay

Compare the differences between hedging using forward contracts and hedging using options.


Definitions:

Federal Unemployment Tax Rate

The percentage rate at which employers are taxed by the federal government to fund the unemployment benefits pool.

FICA Tax Rates

The percentage rates set by law that determine the amount of Social Security and Medicare taxes that must be withheld from employees' paychecks and matched by employers.

Employer's Taxes

Taxes that employers are required to pay on behalf of their employees, such as social security and Medicare taxes in the United States.

Gross Pay

The total amount of money earned by an employee before any deductions or taxes are taken out.

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