A Way in Which a Foreign Currency Transaction Can Be

question 17

Multiple Choice

A way in which a foreign currency transaction can be hedged is:

• A) Buy (or sell) foreign currency at the date of the initial transaction
• B) Enter into a forward rate agreement to fix the cost of the currency at a fixed date in the future
• C) Enter into a transaction which neutralises the risk (e.g., have accounts receivable and accounts payable in the same currency with the same payment dates)
• D) All of the above

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Definitions:

Price Ceiling

A government-imposed limit on how high a price can be charged for a product, service, or resource, usually to protect consumers.

Price Floor

A government or regulatory minimum price that must be paid for a good or service, intended to prevent prices from falling too low.

Shortage

A market condition where demand exceeds supply.

Surplus

A situation where the quantity of a good or service supplied exceeds the quantity demanded, often resulting in excess stock and potential price reductions.