A Business Plans to Acquire a Forward Contract to Hedge

question 32

Multiple Choice

A business plans to acquire a forward contract to hedge a monetary liability. Which of the following statements about the forward contract is true?

• A)If the contract is acquired at a premium, a loss results, and if the contract is acquired at a discount, a gain results.
• B)If the contract is acquired at a premium, a gain results, and if the contract is acquired at a discount, a loss results.
• C)Since the contract is to hedge a monetary liability, a loss results, regardless of whether the contract is acquired at a premium or a discount.
• D)Since the contract is to hedge a monetary liability, a gain results, regardless of whether the contract is acquired at a premium or a discount.

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Definitions:

Miranda Rights

A set of rights read to a person in the United States by law enforcement before they are interrogated to ensure they are aware of their Fifth Amendment rights against self-incrimination.

Law Enforcement Officer

An individual who has the authority to enforce laws and maintain public order and public safety.

Presumption Of Guilt

The principle where an individual is considered guilty until proven innocent, contrary to the traditional presumption of innocence legal standard.

Racketeering

The criminal action of conducting illegal business activities as part of an organized crime group.