Assume Zero Transaction Costs

question 66

Multiple Choice

Assume zero transaction costs. If the 180-day forward rate overestimates the spot rate 180 days from now, then the real cost of hedging payables will be:

• A) positive.
• B) negative.
• C) positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount.
• D) zero.

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Definitions:

Marginal Cost

The cost of producing one additional unit of a product, which can include materials, labor, and other variable costs.

Negotiated Transfer

A transfer price that is agreed upon by the selling and buying divisions within the same company through negotiation.

Performance Measures

Metrics or indicators used to assess, track, and improve the efficiency and effectiveness of processes, employees, or organizations.

Senior Managers

Executives responsible for making high-level decisions and implementing policies within an organization.