It Can Be Argued That, While Financial Hedging Can Be

question 98

Multiple Choice

It can be argued that, while financial hedging can be used to stabilize a firm's cash flows,

• A)it is not a substitute for long-term operational hedging.
• B)it is therefore a substitute for long-term operational hedging.
• C)it is inferior to money market hedging.
• D)none of the above.

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Definitions:

Term Structure

The relationship between interest rates or yields and different terms or maturities for comparable debt instruments.

Interest Rates

The amount charged, expressed as a percentage, by a lender to a borrower for the use of assets.

Nominal Interest Rates

Interest rates that have not been adjusted for inflation, reflecting the rate of interest paid by borrowers or earned by investors.

Pure Discount Securities

Financial instruments that are sold at a discount from their face value and pay no interest until maturity, such as zero-coupon bonds.