A decision to hedge payables in the forward market will be taken if:
A) the actual forward rate is higher than the expected spot rate
B) the actual forward rate is lower than the expected spot rate
C) the interest parity forward rate is equal to the expected spot rate
D) the interest parity forward rate is higher than the expected spot rate

Question

Quizplus · Accepted Answer

A decision to hedge payables in the forward market is typically taken if the actual forward rate is lower than the expected spot rate. This means the company expects the future spot rate to be higher, so locking in a lower rate now through a forward contract will save money.

A Decision to Hedge Payables in the Forward Market Will