Hansel Corp

question 23

Multiple Choice

Hansel Corp. frequently uses a forward hedge to hedge its dollar payables. For the next quarter, Hansel has identified its net exposure to the dollar as being $1,000,000. The 90-day forward rate is £0.55. Furthermore, Hanson's financial centre has indicated that the possible values of the US dollar at the end of next quarter are £0.57 and £0.59, with probabilities of 0.50 and 0.50, respectively. Based on this information, what is the expected real cost of hedging payables (a minus represents a saving) ?

• A) £30,000
• B) -£30,000
• C) £1,570,000
• D) -£1,580,000

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Definitions:

Average Total Cost

The total cost of production divided by the number of goods produced, indicating the cost on average of producing each unit of output.

Marginal Revenue

The plus income from the sale of one more unit of a good or service.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single entity can dictate prices or terms, leading to an efficient allocation of resources.

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, leading to a stable market condition.