Assume Zero Transaction Costs

question 34

Multiple Choice

Assume zero transaction costs. If the 90-day forward rate of the euro underestimates the spot rate 90 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:

Rate of Change

A mathematical calculation that identifies the degree to which a quantity increases or decreases over a given period.

Complexity

The state or quality of being intricate or complicated, often requiring sophisticated understanding or solutions.

High-uncertainty Environments

Situations or contexts in which there is a high level of unpredictability or instability, making it difficult to forecast future events or outcomes.

Decision Makers

Individuals or groups responsible for making choices that will impact the outcomes of certain situations or projects.