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8. A company has to pay a certain amount of a foreign currency in the future. It decides to hedge with futures contracts. Which of the following best describes the advantage of hedging? A. It leads to a more certain exchange rate being paid by the company. B. It leads to a better exchange rate being paid by the company. C. It caps (sets a maximum price) for the exchange rate that will be paid by the company. D. It provides a floor (sets a minimum price) for the exchange rate that will be paid by the company.

8. A company has to pay a certain amount of a foreign currency in the future. It decides to hedge with futures contracts. Which of the following best describes the advantage of hedging? A. It leads to a more certain exchange rate being paid by the company. B. It leads to a better exchange rate being paid by the company. C. It caps (sets a maximum price) for the exchange rate that will be paid by the company. D. It provides a floor (sets a minimum price) for the exchange rate that will be paid by the company.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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8. A company has to pay a certain amount of a foreign currency in the future. It decides to hedge with futures contracts. Which of the following best describes the advantage of hedging? A. It leads to a more certain exchange rate being paid by the company. B. It leads to a better exchange rate being paid by the company. C. It caps (sets a maximum price) for the exchange rate that will be paid by the company. D. It provides a floor (sets a minimum price) for the exchange rate that will be paid by the company. 9. A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract on an index is 900. Futures contracts on $250 times the index can be traded. What trade is necessary to reduce beta to 0.9? A. Long 192 contracts B. Short 192 contracts C. Long 48 contracts D. Short 48 contracts 10. Which of the following is true about short selling consumption commodities? A. It is easy to borrow a consumption commodity and short sell it in the spot market to benefit from a forward mispricing. B. It is difficult to borrow a consumption commodity because owners are hesitant to lend or sell it in the spot market and buy forward or futures contracts. C. Sometimes an investor can short sell a commodity and sometimes he cannot, depending on the market conditions. D. None of the above
Transcribed Image Text:8. A company has to pay a certain amount of a foreign currency in the future. It decides to hedge with futures contracts. Which of the following best describes the advantage of hedging? A. It leads to a more certain exchange rate being paid by the company. B. It leads to a better exchange rate being paid by the company. C. It caps (sets a maximum price) for the exchange rate that will be paid by the company. D. It provides a floor (sets a minimum price) for the exchange rate that will be paid by the company. 9. A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract on an index is 900. Futures contracts on $250 times the index can be traded. What trade is necessary to reduce beta to 0.9? A. Long 192 contracts B. Short 192 contracts C. Long 48 contracts D. Short 48 contracts 10. Which of the following is true about short selling consumption commodities? A. It is easy to borrow a consumption commodity and short sell it in the spot market to benefit from a forward mispricing. B. It is difficult to borrow a consumption commodity because owners are hesitant to lend or sell it in the spot market and buy forward or futures contracts. C. Sometimes an investor can short sell a commodity and sometimes he cannot, depending on the market conditions. D. None of the above
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