One of the Drawbacks of Using Forward Contracts to Hedge

question 57

Multiple Choice

One of the drawbacks of using forward contracts to hedge foreign-exchange risk is that the:

• A)transaction costs in the forward market are high.
• B)forward rates are always lower than spot rates.
• C)hedged currency could appreciate during the period.
• D)hedged currency could depreciate during the period.

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Definitions:

Ability to See

A physiological function that allows organisms to interpret electromagnetic wavelengths from the environment, commonly known as vision.

Humans

Intelligent, bipedal species known for advanced communication, social structures, and ability to create and manipulate the environment.

Retinal System

The part of the eye responsible for converting light into neural signals, allowing for the perception of visual images.

Cone Vision

The visual perception enabled by cone cells in the retina of the eye, allowing for color vision and detailed vision in bright light conditions.