Hanson Corp

question 63

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:

Accommodation Maker

An individual who signs a loan document as a guarantor without receiving any of the loan proceeds, promising to pay the debt if the principal borrower fails to do so.

Primarily Liable

Being directly and foremost responsible for a legal obligation or debt.

Promissory Note

A financial instrument that contains a written promise by one party to pay another a definite sum of money, either on demand or at a specified future date.

Forged Indorsement

An unauthorized signature on a negotiable instrument, such as a check, meant to transfer the instrument’s ownership.