Which of the Following Reflects a Hedge of Net Payables

question 47

Multiple Choice

Which of the following reflects a hedge of net payables in British pounds by a U.S. firm?​

• A)Purchase a currency put option in British pounds.
• B)Sell pounds forward.
• C)Sell a currency call option in British pounds.
• D)Borrow U.S. dollars, convert them to pounds, and invest them in a British pound deposit.
• E)A and B

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Definitions:

Incremental Cash Flows

The extra cash flow from operations generated by a company when it embarks on a new project.

Net Present Value

The difference between the present value of cash inflows and outflows over a period of time, used in capital budgeting to assess the profitability of an investment.

Incremental Cash Flows

The additional cash flows that a company expects to generate from a particular investment or project.

Terminal Values

The estimated value of a project or investment at the end of its life, often used in discounted cash flow analyses.