Which of the Following Statements Is Least Correct Regarding Corporations

question 10

Multiple Choice

Which of the following statements is least correct regarding corporations involved in international business transactions?

• A) They may purchase currency put options to hedge future receivables denominated in a foreign currency.
• B) They may purchase currency call options to hedge future payables denominated in a foreign currency.
• C) They may purchase currency call options to hedge future receivables denominated in a foreign currency.
• D) They benefit from currency put options if the currency's value declines before the expiration date of the option.

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Definitions:

Risk Premiums

Additional returns expected by an investor for taking on additional risk, over and above the risk-free rate of return.

Multifactor APT

Multifactor Arbitrage Pricing Theory, a model that describes the relationship between risk and expected return with multiple factors.

Beta

An indicator of the level of fluctuation, or inherent risk, of an asset or collection of assets relative to the overall market.

Zero-Investment Portfolio

A portfolio of zero net value, established by buying and shorting component securities, usually in the context of an arbitrage strategy.