What Reason Might Be Given for Not Wanting to Hedge

question 2

Multiple Choice

What reason might be given for not wanting to hedge the future issuance of a liability if interest rates are unusually high?

• A) the margin cost will be expensive
• B) you are locking in a high rate
• C) transaction costs are higher
• D) futures prices are lower
• E) none of the above

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Definitions:

Required Rate Of Return

The minimum percentage return an investor expects to receive from an investment due to its risk level.

Tax Rate

The percentage at which an individual or corporation is taxed on their income.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating its short-term financial health and efficiency.

Floor Inventory

The minimum amount of goods that a retailer keeps on the shop floor to ensure an adequate supply for normal sales volumes.