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

question 104

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) $68,966

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Definitions:

Purchase Returns and Allowances

Transactions where buyers return goods or are granted reductions in the initial selling price due to defects or other issues.

Purchase Discounts

Purchase discounts are reductions in the price paid for merchandise or services due to early payment by the buyer.

Freight-In

Refers to the transportation cost associated with getting goods from the manufacturer to the place of production or sales.

GAAP

Generally Accepted Accounting Principles, a set of rules and standards used for financial reporting and accounting practice in the United States.