Question

Your firm is based in the U.S. and one of your primary suppliers is located in...

Your firm is based in the U.S. and one of your primary suppliers is located in the Czech Republic. One way for your firm to transfer foreign exchange risk (associated with your firm’s accounts payable) to your supplier is to

a.

sell the Czech supplier a futures contract
b.

increase the price of the merchandise
c.

have the invoice denominated in dollars
d.

both a and b

1.A foreign exchange rate may be defined as

a.

the amount of a second currency that can be purchased an unit of another currency
b.

the interest rate of the overnight funds in the foreign country's money market
c.

the number of units of gold that can be bought in a foreign country for one unit of that country's currency
d.

the price of a futures contract in the financial futures market
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Answer:

20 c. have the invoice denominated in dollars. Correct option

In this way the firm based in US will get fixed dollar amount and any appreciation or depreciation in Czech Republic currency needs to be bear by foreign company only.

21 A. the amount of a country s currency that can be purchased an unit of another country s currency

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