A Business Has a Contractual Requirement to Pay a Sum

question 12

Multiple Choice

A business has a contractual requirement to pay a sum of $6m in a foreign currency in 12 months time. It takes out a forward foreign exchange contract for this sum. This is an example of:

• A) translation risk avoidance
• B) economic risk reduction
• C) arbitrage
• D) hedging

---

Definitions:

Distribution

In statistics, it refers to the way in which data or values are spread out or distributed across a range of possibilities.

Z Score

A statistical measure illustrating the relation of a value to the mean of its group by detailing it in standard deviations from the mean.

Extreme

Relating to values that are farthest from the mean or median in a data set, often considered outliers.

Z Score

A calculation used to express the difference of a particular value from a group's mean, in terms of how many standard deviations away it is.