​The Real Cost of Hedging Payables with a Forward Contract

question 71

Multiple Choice

​The real cost of hedging payables with a forward contract equals:

• A) ​the dollar cost of hedging minus the dollar cost of not hedging.
• B) ​the dollar cost of not hedging minus the dollar cost of hedging.
• C) ​the dollar cost of hedging divided by the dollar cost of not hedging.
• D) ​the dollar cost of not hedging divided by the dollar cost of hedging.

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Definitions:

Standard Deviation

A criterion for evaluating the extent of scattering or variation present in a dataset.

Probability

A quantification of the probability that a specific event will take place, commonly represented as a value ranging from 0 to 1.

Normal Model

A statistical model characterized by the normal (Gaussian) distribution, representing a bell-shaped curve where most observed data falls close to the mean.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, indicating how much the values in a dataset deviate from the mean.