If interest rate parity exists and transactions costs are zero, the hedging of payables in euros with a forward hedge will ____.
A) have the same result as a call option hedge on payables
B) have the same result as a put option hedge on payables
C) have the same result as a money market hedge on payables
D) require more dollars than a money market hedge
E) A and D

Question

Quizplus · Accepted Answer

If interest rate parity exists and transactions costs are zero, then a money market hedge will provide the same result as a forward hedge on payables. Therefore, option A and B are incorrect. A forward hedge and a money market hedge require the same amount of dollars, so option D is also incorrect. Therefore, the correct answer is C).

If Interest Rate Parity Exists and Transactions Costs Are Zero