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:

Process Cost Accounting

An accounting method used to track production costs by processing departments or units, suitable for industries where products are indistinguishable from each other, such as chemicals.