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All main topics / Finance & Investment / Derivatives / Derivatives
A company due to pay a certain amount of a foreign currency in the future decides to hedge with futures contracts.  Which of the following best describes the advantage of hedging?
A.It leads to a better exchange rate being paid
B.It leads to a more predictable exchange rate being paid
C.It caps the exchange rate that will be paid
D.It provides a floor for the exchange rate that will be paid
Answer: B

Hedging is designed to reduce risk not increase expected profit. Options can be used to create a cap or floor on the price. Futures attempt to lock in the price

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Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015




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