A Company Knows It Will Have to Pay a Certain

question 8

Multiple Choice

A company knows it will have to pay a certain amount of a foreign currency to one of its suppliers in the future.Which of the following is true

• A) A forward contract can be used to lock in the exchange rate
• B) A forward contract will always give a better outcome than an option
• C) An option will always give a better outcome than a forward contract
• D) An option can be used to lock in the exchange rate

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Definitions:

Tee Shirts

Garments typically made of cotton, with short sleeves and no collar, popular as casual wear.

Candy

A sweet confection made from sugar or chocolate and often flavored with fruits, nuts, or other ingredients.

Exchange Equilibrium

A situation in a market where the quantity demanded by consumers is equal to the quantity supplied by producers, leading to a stable price.

Marginal Rates

Rates that apply to the next level of consumption, production, or income, often used in taxation to refer to the percentage of tax applied to the next dollar earned.