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

question 38

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.
• B)futures contract.
• C)forward contract.
• D)put options contract.

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Definitions:

Operating Cash Flow (OCF)

Cash generated from a company's regular business operations, indicating its ability to generate sufficient revenue to maintain operations.

Equivalent Annual Cost

A financial metric used to compare the cost effectiveness of various investments with different lifespans, by converting costs into an annualized figure.

Present Value

The present-day worth of future monetary amounts or cash flow series, determined by applying a specified rate of return.

Operating Cash Flows

The cash generated from a company’s normal business operations, indicating its capability to generate sufficient revenue to maintain and grow operations.