You're Hoarse from Explaining to Your Supervisor That the Cost

question 26

Multiple Choice

You're 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 2 million euro commitment if the spot rate is €1.6/$, the forward rate is €1.55/$, and the expected spot rate at the end of the hedge is €1.6/$?

• A) $0
• B) $25,000
• C) $40,323
• D)$36,667

Analyze the impact of investment decisions and biases on fund performance.

Compute and interpret the returns from various investment strategies.

Appreciate the importance of risk adjustment in measuring mutual fund performance.

Identify the biases and challenges in measuring and comparing mutual fund performances.

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Definitions:

Variable Costs

Expenses that change in proportion to the activity or volume of operations in a business.

Cost-Plus Pricing

A pricing strategy where a fixed percentage or amount is added to the cost of producing a product or service to determine its selling price.

Full Cost

The total cost of production that includes both direct and indirect costs, such as raw materials, labor, and overhead.

Return On Investment

A performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of several different investments.