The Real Cost of Hedging Payables with a Forward Contract

question 31

Multiple Choice

The real cost of hedging payables with a forward contract equals:

• A) the nominal cost of hedging minus the nominal cost of not hedging.
• B) the nominal cost of not hedging minus the nominal cost of hedging.
• C) the nominal cost of hedging divided by the nominal cost of not hedging.
• D) the nominal cost of not hedging divided by the nominal cost of hedging.

---

Definitions:

Winning Streak

A consecutive series of wins or successes, especially in sports, demonstrating a period of good performance.

Free Shots

Another term for free throws in basketball, which are unopposed attempts to score points from a designated line on the court following a foul.

Probability

Refers to the statistical measure that quantifies the chance something will happen or is true.

Success Rate

The proportion or percentage of attempts that are successful, often used to gauge the effectiveness of a process or treatment.