Which of the Following Does Not Represent the Risk from Using

question 92

Multiple Choice

Which of the following does not represent the risk from using forward contracts?

• A) if a forward contract is used to hedge receivables, and the spot exchange rate at the expiration of contract exceeds the contract price.
• B) if a forward contract is used to hedge receivables, and the spot exchange rate at the time of expiration of contract is lower than the contract price.
• C) if a forward contract is used to hedge payables, and the spot exchange rate at the time of expiration of contract is lower than the contract price.
• D) if a forward contract is used to hedge payables or receivables and the amount to be received or paid is cancelled.

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Definitions:

Intersection

An operation in set theory whereby only the elements that are common to all sets are included in the outcome.

Marginal Probability

The probability of a single event occurring without consideration of any other events.

Mutually Exclusive

Two events that cannot occur at the same time, indicating no overlap in possible outcomes.

Independent

The condition where the occurrence or outcome of one event does not affect the occurrence or outcome of another event.