DEC Hedges a FF 3

question 43

Multiple Choice

DEC hedges a FF 3.2 million receivable due in 180 days. The current spot rate is FF 1 = $0.18834 and the 180?day forward rate is FF 1 = $0.18625. If the spot rate at the end of 180 days is $0.18728, how much has the forward market hedge cost DEC?

• A) $6,688
• B) $3,392
• C) $3,296
• D) DEC gains $6,688 on the hedge

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Definitions:

Statement of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities.

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The process of estimating the amount of inventory a company will need over a future period based on historical sales data, seasonality, and market trends.

Regression Line

A statistical method used to describe the relationship between a dependent variable and one or more independent variables, usually represented as a straight line on a graph.

Dividend Payout Ratio

The percentage of a company's earnings distributed to its shareholders in the form of dividends.