If a Firm Must Pay for Goods It Has Ordered

question 97

Multiple Choice

If a firm must pay for goods it has ordered with foreign currency,it can hedge its foreign exchange rate risk by

• A) selling foreign exchange futures short.
• B) buying foreign exchange futures long.
• C) staying out of the exchange futures market.
• D) doing none of the above.

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Definitions:

Revealed Preferences

An economic theory that determines consumer preferences by observing their purchasing behavior rather than through direct inquiry.

Francs

A currency unit formerly used in France and some other countries, and still used in some territories.

Consumption

The process of using goods and services to satisfy wants or needs.

Revealed Preferences

An economic theory that infers preferences of consumers by observing choices made under budget constraints, instead of through direct inquiry of preferences.