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 the above

Question

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 the above

Quizplus · Accepted Answer

A forward hedge is used to lock in a future exchange rate for a transaction that will take place at a later date. If the forward rate is an accurate predictor of the future spot rate, the real cost of hedging payables will be zero since the actual spot rate will not deviate from the forward rate.

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