In a forward hedge, if the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be:
A) highly positive.
B) highly negative.
C) zero.
D) None of these are correct.

Question

Quizplus · Accepted Answer

If the forward rate is an accurate predictor of the future spot rate, the hedge will perfectly offset any gain or loss from the change in the spot rate. Thus, the real cost of hedging payables will be zero.

In a Forward Hedge, If the Forward Rate Is an Accurate