One of the Drawbacks of Using Forward Contracts to Hedge

question 57

Multiple Choice

One of the drawbacks of using forward contracts to hedge foreign-exchange risk is that the:

• A)transaction costs in the forward market are high.
• B)forward rates are always lower than spot rates.
• C)hedged currency could appreciate during the period.
• D)hedged currency could depreciate during the period.

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Definitions:

Conversion

The unauthorized act of taking or using someone's property as if it were one's own, often leading to civil legal actions.

Fitness Watch

A wearable device designed to monitor and record various health and fitness metrics, such as steps taken, heart rate, and calories burned.

Cut-Price Store

A retail outlet offering goods for sale at significantly reduced prices, often specializing in discounts or bulk purchasing options.

Bailment

Represents a legal relationship in commercial law where physical possession of personal property is transferred from one person to another under the agreement that the property will be returned.