If a Firm Hedges a Future Purchase of Euros by Purchasing

question 24

Multiple Choice

If a firm hedges a future purchase of euros by purchasing a call option, the firm ________ the potential cost but will benefit if the euro ________.

• A) fixes, depreciates
• B) fixes, appreciates
• C) caps, depreciates
• D) caps, appreciates

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Definitions:

Diminishing Returns

A principle in economics where each additional unit of input results in a progressively smaller increase in output.

Diseconomies of Scale

The phenomenon where production costs per unit increase as a firm or industry's output expands.

Output

The amount of something produced by a person, machine, or industry.

Total Cost

The aggregate of fixed and variable costs of production for a given level of output, encompassing all expenses needed to produce goods or services.