Question

Carlos is the manager of an American company. He expects the value of the British pound to appreciate in the near future and so delays the collection of payments from British customers until the next month. Which tactic is Carlos using to minimize the foreign exchange exposure?

Answer 1

Answer: Speculation.

Explanation:

Carlos tries to make a profit through exchange rates. Carlos is a speculator who tries to make profit through market fluctuations. The strategy is a risky strategy as the speculators based on their knowledge about the market make decisions accordingly.

Carlos is planning to receive the appreciated value of British Pounds so that he receives the same amount as mentioned in the contract but makes profit out of exchange rates and books FX profits in his books of accounts.