A ________ hedge and a ________ hedge guarantee fixed payoffs but a ________ hedge or ________ hedge offer uncertain outcomes.

Question

Quizplus · Accepted Answer

A money market hedge involves borrowing the foreign currency at the foreign interest rate and investing it in the domestic currency at the domestic interest rate. This guarantees a fixed payoff. 
A forward hedge involves entering into a contract to buy or sell a specific amount of currency at a certain exchange rate on a future date. This also guarantees a fixed payoff. 
A currency option hedge and no hedge at all offer uncertain outcomes as the exchange rate may fluctuate in unpredictable ways. Therefore, the best choice is C, where the money market and forward hedges guarantee fixed payoffs.

A ________ Hedge and a ________ Hedge Guarantee Fixed Payoffs

A Hedge and a Hedge Guarantee Fixed Payoffs