Which of the Following Hedging Strategies Would a Business Most

question 43

Multiple Choice

Which of the following hedging strategies would a business most likely use?

• A)An importer will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net asset position.
• B)An importer will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position.
• C)An exporter will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net liability position.
• D)An exporter will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position.

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Definitions:

Option Contract

An option contract is a financial derivative that confers the right, but not the obligation, to buy or sell an asset at a set price on or before a certain date.

Forward Contract

A customizable financial contract between two parties to buy or sell an asset at a specified price on a future date.

Option Price

The price at which the holder of an option can buy (call option) or sell (put option) the underlying asset.

Forward Price

The agreed-upon price for a financial transaction that will occur at a future date.