You Are Hoarse from Explaining to Your Supervisor That the Cost

question 94

Multiple Choice

You are hoarse from explaining to your supervisor that the cost, if any, of hedging exchange-rate risk can be thought of as an insurance premium to avoid surprises.What is the cost of hedging a DM2 million commitment if the spot rate is DM1.6/$, the forward rate is DM1.55/$, and the expected spot rate at the end of the hedge is DM1.6/$?

• A)$0
• B)$25,000
• C)$40,323
• D)$68,966 current Dollar commitment =

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Definitions:

LCL

stands for Lower Control Limit, which is a line on a control chart that represents the lower acceptable limit of process variability or performance.

Permutation Test

A non-parametric statistical test that assesses the significance of the difference between groups by rearranging the data points among the groups many times and calculating the differences for each rearrangement.

Null Hypothesis

A statement suggesting that there is no significant difference or effect, and any observed difference is due to chance.

Identical Populations

Populations in statistical studies that have exactly the same characteristics, distributions, and parameters.