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 from payables 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.

---

Definitions:

Time Clocks

Devices used to record the start and end times of employees' work hours.

Internal Control System

A process put in place by a company's management and board of directors to help ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Protect Assets

Measures and strategies implemented by a business or individual to safeguard tangible and intangible assets from loss, theft, or damage.

Internal Control Systems

Procedures and mechanisms implemented by a business to safeguard assets, enhance the reliability of financial reports, and ensure compliance with laws and regulations.