Question

Which of the following involves defending against rate surges with agreements that businesses can purchase resources in the future at predetermined prices?

1) Leveraging
2) Prospectus
3) Zero-based budgeting
4) Financial control
5) Hedging

Answer 1

Hedging involves defending against rate surges with agreements that businesses can purchase resources in the future at predetermined prices.

Step-by-step explanation:

Hedging involves defending against rate surges with agreements that businesses can purchase resources in the future at predetermined prices. Hedging involves defending against rate surges with agreements that businesses can purchase resources in the future at predetermined prices.

For example, in a case where a U.S. firm is exporting to France and has signed a contract to receive 1 million euros a year from now, they can hedge by signing a financial contract and paying a fee. This contract guarantees them a certain exchange rate one year from now, regardless of the market exchange rate at that time. By using hedging, the firm can protect themselves from currency risk and ensure a predetermined price for their resources.