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You Are Hoarse from Explaining to Your Supervisor That the Cost

Question 94

Multiple Choice

You are hoarse from explaining to your supervisor that the cost, if any, of hedging exchange-rate risk can be thought of as an insurance premium to avoid surprises.What is the cost of hedging a DM2 million commitment if the spot rate is DM1.6/$, the forward rate is DM1.55/$, and the expected spot rate at the end of the hedge is DM1.6/$?


A) $0
B) $25,000
C) $40,323
D) $68,966 current Dollar commitment =

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