An options contract to hedge possible future price changes of an inventory of supply parts would:
A)Represent a cash flow hedge.
B)Represent a fair value hedge.
C)Represent a foreign currency hedge.
D)Not qualify as a hedge.

Question

Quizplus · Accepted Answer

An options contract used to hedge against price changes in an inventory of supply parts is a fair value hedge, as it is intended to protect against changes in the fair value of an asset or liability.

An Options Contract to Hedge Possible Future Price Changes of an Inventory