You Are Hoarse from Explaining to Your Supervisor That the Cost

question 1

Multiple Choice

You are hoarse from explaining to your supervisor that the cost, if any, of hedging exchange-rate risk can be thought of as an insurance premium to avoid surprises.What is the cost of hedging a €2 million commitment if the spot rate is €1.6/$, the forward rate is €1.55/$, and the expected spot rate at the end of the hedge is €1.6/$?

• A)$0
• B)$25,000
• C)$40,323
• D)$68,966

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Definitions:

Degrees of Freedom

A concept in statistics that represents the number of independent values or quantities which can be assigned to a statistical distribution.

Categories

Distinct groups or classes into which data or items can be classified.

Chi-square Test

A statistical test used to determine if there is a significant difference between the expected frequencies and the observed frequencies in one or more categories.

Distribution

Refers to the way in which something is shared out or spread across a range, often used in reference to statistical data.