After Assessing the Risk of the Various Exposures,a Company Decides

question 47

Multiple Choice

After assessing the risk of the various exposures,a company decides to take a money market hedge.The general principle of a money market hedge is to:

• A) transact in the money market of the country whose currency you are exposed to.
• B) borrow the home currency and deposit it in the foreign money market until the future date of the exposed transaction.
• C) take a position in the home money market today that establishes a future obligation that is the opposite of the exposed underlying transaction.
• D) none of the given choices are correct.

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Definitions:

Output Effect

Refers to the impact on the output level of a firm when it changes the price of its product, often analyzed in the context of monopolistic competition and oligopolies.

Substitution Effect

The economic theory that as prices rise, consumers will replace more expensive items with less costly alternatives, thereby altering the demand for these goods.

Wage Rate

The amount of money paid to employees for their work or services, typically expressed per hour or year.

Output Effect

The impact on total production when a firm adjusts its output level in response to a change in price.