All other things held constant, MNC managers prefer to use _______ over ______to hedge their transaction exposures.Question 4Answera.forward contracts, optionsb.options, forward contractsc.forward contracts, futures contractsd.futures contracts, forward contractse.None of the options in this question.Clear my choice
Question
All other things held constant, MNC managers prefer to use _______ over ______to hedge their transaction exposures.Question 4Answera.forward contracts, optionsb.options, forward contractsc.forward contracts, futures contractsd.futures contracts, forward contractse.None of the options in this question.Clear my choice
Solution
The answer to this question depends on the specific preferences and risk tolerance of the MNC (Multinational Corporation) managers. However, in general, many MNC managers may prefer to use forward contracts over options to hedge their transaction exposures.
This is because forward contracts can be customized to fit the exact amount and date of the exposure, providing a perfect hedge. On the other hand, options provide the right but not the obligation to buy or sell a currency in the future. While this provides more flexibility, it comes at a cost, as options require a premium to be paid upfront.
Therefore, the answer would be a. forward contracts, options. However, it's important to note that this may not always be the case, as different managers may have different preferences based on their specific circumstances and risk tolerance.
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