What Is the Primary Difference Between a Cash Flow Hedge

question 18

Multiple Choice

What is the primary difference between a cash flow hedge and a fair value hedge?

• A) The fair value hedge must completely offset the variability in the cash flow from the foreign currency receivable or payable.
• B) The cash flow hedge can only be used to offset potential foreign currency losses on accounts receivable.
• C) The cash flow hedge must completely offset the variability in cash flow from the foreign currency receivable or payable.
• D) The fair value hedge can only be used to offset the variability in cash flow from long-term fixed assets related to foreign currency fluctuations.

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Definitions:

Current Flows

The movement of electric charge carriers, such as electrons, through a conductor.

Field Winding

Coils of wire (windings) placed on the field poles of a generator or motor that create a magnetic field when electric current flows through them.

Voltage Regulator

A device that controls the amount of current that is supplied to the field winding in an AC generator.

Current

The flow of electric charge through a conductor, measured in amperes, which is a fundamental concept in electricity and electronics.