A Firm Wants to Hedge a Potential Transaction but Is

question 34

Multiple Choice

A firm wants to hedge a potential transaction but is also concerned about a possibility that it may not take place. In this case it is better to hedge potential risks using ________.

• A) options
• B) forwards
• C) futures
• D) none of the above

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Definitions:

Stock Prices

The current market value of a share of a company's stock, determined by the supply and demand in the stock market.

Budget Deficit

The situation where a government's expenditures exceed its revenue.

Demand For Loanable Funds

The desire by households and firms to borrow money to finance investment projects, where the interest rate is the price of the loan.

REAL Number

A value that represents a quantity along a continuous line, including all rational and irrational numbers.