Opportunity Cost
Written by Tony Crivelli
Updated over a week ago

An opportunity cost may arise from any hedging that is undertaken. When a business takes a forward or option contract, in most cases there will be an obligation to transact at a specified rate, even if the market rate is more favourable.

While this may not be a real cost, it may result in the business becoming less competitive if they have hedged too much at an unfavourable rate.

It may also turn into a real cost if the hedge needs to be cancelled due to changes in currency requirements.

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