If a firm is hedging payables with futures contracts, it may end up paying more for the payables than it would have had it remained unhedged if the foreign currency depreciates.

Question

Quizplus · Accepted Answer

If the foreign currency depreciates, the firm would have been better off not hedging as it would have paid less in its own currency for the payables. However, hedging does provide protection against the risk of the foreign currency appreciating, which could result in the firm paying more for the payables if left unhedged.

If a Firm Is Hedging Payables with Futures Contracts, It