Question

If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 in 90 days, it could:___________.
a. obtain a 90-day forward purchase contract on euros.
b. sell euros 90 days from now at the spot rate.
c. obtain a 90-day forward sale contract on euros.
d. purchase euros 90 days from now at the spot rate.

Answer 1

A 90-day forward-sale purchase contract will help to reduce or eliminate the risk facing the U.S. Firm.

What is a Forward sale Contract?

This refers to a special contract between two parties to purchase or sell an asset at an agreed price on a future date.

The fact that the price has been set and agreed upon protects the parties from fluctuations, which in this case, is exchange rate risks.

The correct answer, thus, is A.

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