Your US-Based Firm Is Deciding Between Using Currency Futures Contracts or or a Forward

question 63

Multiple Choice

Your U.S.-based firm is deciding between using currency futures contracts or a forward contract with its commercial bank in order to hedge a scheduled dividend from its subsidiary corporation in Germany.The dividend will be repatriated in July,while the currency futures contracts are only available for June or September delivery.Which of the following choices properly hedges the transaction without basis risk?

• A)Long Euro future contracts
• B)Short Euro future contracts
• C)Enter Forward to sell Euros forward in July
• D)Enter Forward to buy Euros forward in July

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Definitions:

Stakeholders

Individuals or groups that have an interest, claim, or stake in a company, and can affect or be affected by the business.

Dynamic Communication

Communication practices characterized by adaptability, interactivity, and responsiveness to changing contexts or audiences.

Organizational Stake

An interest or share in an undertaking or organization, typically referring to how various stakeholders can affect or be affected by the organization's activities and policies.

Ideological Control

The attempt to influence or control people's beliefs, values, and behaviors through normative ideas and assumptions within an organization or society.