Question

If a Canadian company were to import from Russia and must pay in Russian ruble when...

If a Canadian company were to import from Russia and must pay in Russian ruble when the goods are delivered in 60 days, should the company get the currency through the spot or the futures market? Why? Would it be different if the company had to pay in US$? Explain.

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Answer #1

While trading with Russia the Canadian Companies should use the Futures market. The futures market is basically a contract to buy goods and services at a specified price at a specific date in the future. It covers the risks and volatility of the exchange market which the Canadian companies can face in the future.

While trading with the US the company can use Spot rate which fixes the price and services at the current rate. The transaction with the US will be just a matter of few days at maximum and the short time will not affect the market much.

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