Which of the Following Would Be an Effective Hedge

question 80

Multiple Choice

Which of the following would be an effective hedge?

• A)Sell £2,500 forward at the 1-year forward rate, F₁($/£), that prevails at time zero.
• B)Buy £2,500 forward at the 1-year forward rate, F₁($/£), that prevails at time zero.
• C)Sell £25,000 forward at the 1-year forward rate, F₁($/£), that prevails at time zero.
• D)None of the above

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Definitions:

Conversion Cost

The combined total of direct labor and manufacturing overhead costs, representing the expenses necessary to convert raw materials into finished goods.

Direct Materials

Direct materials constitute the primary raw inputs directly incorporated into the manufacture of products, distinctly traceable to the product being produced.

Completed During Period

Refers to activities, projects, or production that have been started and finished within a specific timeframe, often relating to manufacturing or project management.

Job Order Manufacturing

A production system in which goods are manufactured based on specific customer orders, allowing for customization of products.