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

Question

Quizplus · Accepted Answer

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

A Company Due to Pay a Certain Amount of a Foreign