Question

How can an exporter with foreign currency receivables in six months hedge its foreign exchange risk?

A) Buy domestic currency and sell foreign currency in the spot market

B) Sell domestic currency and buy foreign currency in the spot market

C) Buy domestic currency and sell foreign currency in the forward market

D) Sell domestic currency and buy foreign currency in the forward market

E) Simultaneously do B. and C.

Answer 1

And exporter with foreign currency receivables in 6 months hedge its foreign exchange risk by applying two important activities number 1 sell domestic currency and buy foreign currency in the spot market and buy domestic currency and sell foreign currency in the Forward Market so here the option e is applicable because the main purpose of hedge is to reduce the foreign exchange risk and it can only be possible by applying both the things simultaneously means buy and sell process according to the market conditions.
Option A and option D is only just a part of option c in this question.

answered by: anonymous