A Disadvantage of Forward Agreements Is That

question 26

Multiple Choice

A disadvantage of forward agreements is that

• A)there is a possibility that one party to the agreement may default.
• B)sellers are prevented from hedging.
• C)buyers are prevented from hedging.
• D)sellers are prevented from speculating.

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Definitions:

New Classical

An economic theory that emphasizes the importance of rational expectations and market-clearing prices in understanding economic fluctuations.

Rational Expectations

The hypothesis that forecasts of future values of economically relevant variables are based on all available information and are therefore optimal.

Keynesians

Followers and theorists of Keynesian economics, which emphasizes the need for government intervention in economies to manage output and demand through fiscal and monetary policies.

Classical School

A school of economic thought that emphasizes the importance of free markets, competition, and the self-regulating nature of economies.