If a Firm Planning to Hedge Receivables Is Certain of the Future

question 23

Multiple Choice

If a firm planning to hedge receivables is certain of the future direction a spot rate will move, and requires a tailor-made hedge in terms of amount and maturity date, it should use a

• A)call options contract traded on an exchange.
• B)futures contract traded on an exchange.
• C)forward contract.
• D)put options contract traded on an exchange.

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Definitions:

Cost of Goods Available

The total cost of inventory that is available for sale during a given period.

Net Operating Income

The earnings from a company's core business operations, indicating the efficiency in managing its operational costs.

T-Accounts

A visual representation of accounts used in double-entry bookkeeping, showing debits on the left and credits on the right, to track the balance of each account.

Manufacturing Overhead

The indirect costs associated with manufacturing, covering expenses like maintenance, utilities, and staff salaries not directly involved in production.