A company knows it will have to pay a certain amount of a foreign currency to one of its suppliers in the future. Which of the following is true
A. A forward contract can be used to lock in the exchange rate
B. A forward contract will always give a better outcome than an option
C. An option will always give a better outcome than a forward contract
D. An option can be used to lock in the exchange rate
A
A forward contract ensures that the effective exchange rate will equal the current forward exchange rate. An option provides insurance that the exchange rate will not be worse than a certain level, but requires an upfront premium. Options sometimes give a better outcome and sometimes give a worse outcome than forwards.
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In which of the following cases is a third party claim normally issued?
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A Rhode Island Red just joined him up on the deck; what is the probability it is a rooster?
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