Question

Which of the below statements is NOT true:

A. Like a forward market hedge, a money market hedge also involves a contract and a source of funds to fulfill that contract. In this instance, the contract is a loan agreement.

B. Hedging transaction exposure with option contracts allows the firm to benefit if exchange rates are favorable but protects the firm if exchange rates turn unfavorable.

C. A firm's beta is a combination of management's philosophy toward transaction exposure and the specific goals of treasury activities.

D. The structure of a money market hedge is similar to a forward hedge. The difference is the cost of the money market hedge is determined by the differential interest rates, while the forward hedge is a function of the forward rates quotation.

Answer 1

Solution :- The Statement C is not true

A firms risk tolerance is a combination of management's philosophy toward transaction exposure and the specific goals of treasury activities.