Which of the Following Describes What a Company Should Do

question 16

Multiple Choice

Which of the following describes what a company should do to create a range forward contract in order to hedge foreign currency that will be paid?

• A) Buy a put and sell a call on the currency with the strike price of the put higher than that of the call
• B) Buy a put and sell a call on the currency with the strike price of the put lower than that of the call
• C) Buy a call and sell a put on the currency with the strike price of the put higher than that of the call
• D) Buy a call and sell a put on the currency with the strike price of the put lower than that of the call

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Definitions:

Marginal Income Tax Rate

The percentage of tax applied to your income for each tax bracket in which you qualify, essentially the rate at which the last dollar of your income is taxed.

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, giving more weight to some numbers than others.

Basic Earnings

The net income earned by a company divided by the number of outstanding shares, providing a measure of the company’s profitability on a per-share basis.

Common Stock

A type of security that represents ownership in a corporation, granting shareholders voting rights and a share in the company's profits via dividends.