Hanson Corp

question 24

Multiple Choice

Hanson Corp. frequently uses a forward hedge to hedge its British pound (£) payables. For the next quarter, Hanson has identified its net exposure to the pound as being £1,000,000. The 90-day forward rate is $1.50. Furthermore, Hanson's financial center has indicated that the possible values of the British pound at the end of next quarter are $1.57 and $1.59, with probabilities of .50 and .50, respectively. Based on this information, what is the expected real cost of hedging payables?

• A) $80,000.
• B) -$80,000.
• C) $1,570,000.
• D) $1,580,000.

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Definitions:

Investment Opportunities

Potential investments that a company or individual could make to earn a return.

Limited Partner

An investor in a partnership who is not involved in day-to-day management and whose liability is limited to the amount invested in the partnership.

Cash Flows

The gross total financial exchange in and out of an enterprise, significantly altering its liquidity capacity.

Capital Structure

A company's use of both borrowed money and stocks to finance its ongoing operations and grow.