If a Salerno Plc Desired to Lock in a Minimum

question 15

Multiple Choice

If a Salerno plc desired to lock in a minimum rate at which it could sell its net receivables in Japanese yen but wanted to be able to capitalize if the yen appreciates substantially against the pound by the time payment arrives, the most appropriate hedge would be:

• A) a money market hedge.
• B) a forward sale of yen.
• C) purchasing yen call options.
• D) purchasing yen put options.
• E) selling yen put options.

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Definitions:

Price Elasticity

The evaluation of demand's reaction to fluctuations in the price of a particular good.

Responsiveness

The degree to which a variable responds to a change in an underlying factor, often used in economic contexts to describe changes in supply, demand, price, etc.

Price Elasticity

A measure of how much the quantity demanded or supplied of a product changes in response to a change in its price.

Inelastic

A description of a situation where the quantity demanded or supplied changes by a smaller percentage than the changes in price.