The real cost of hedging payables with a forward contract equals:
A) the nominal cost of hedging minus the nominal cost of not hedging.
B) the nominal cost of not hedging minus the nominal cost of hedging.
C) the nominal cost of hedging divided by the nominal cost of not hedging.
D) the nominal cost of not hedging divided by the nominal cost of hedging.

Question

Quizplus · Accepted Answer

The real cost of hedging payables with a forward contract is the difference between the nominal cost of hedging and the nominal cost of not hedging. This takes into account the cost of the forward contract itself and any gains or losses due to fluctuations in the exchange rate. Therefore, option A is the correct choice.

The Real Cost of Hedging Payables with a Forward Contract