If a Firm Hedges a Future Purchase of Euros by Purchasing

question 24

Multiple Choice

If a firm hedges a future purchase of euros by purchasing a call option, the firm ________ the potential cost but will benefit if the euro ________.

• A) fixes, depreciates
• B) fixes, appreciates
• C) caps, depreciates
• D) caps, appreciates

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Definitions:

Market Basket

A selected group of goods and services used to track inflation and other economic indicators through price changes.

Base Year

A specific year against which economic growth is measured, serving as a standard point of comparison for real economic calculations such as GDP.

Consumer Price Index

An index that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Annual Rate

A way of expressing interest rates or growth rates on an annual basis, allowing for easier comparison across different time periods or financial products.