Question

1. OmuOmu Ltd. is an Australian firm and has some expenses and revenue in USD. If its expenses are more sensitive to exchange rate movements than its sales is, it could reduce economic exposure by ____.

   		selling forward contract
   		increasing local revenues
   		increasing foreign revenues
   		increasing foreign expenses

Answer 1

Answer-

OmuOmu Ltd.

The correct Option is second Option increasing local revenues.

By increasing local revenues the expenses like SG&A and operating expenses will have lower economic exposure to exchange rate fluctuations with respect to Australian dollar and USD.

The other options 1,3 and 4 are incorrect as

Selling forward contract cannot be carried out without the anticipating the direction of movement of exchange rates
Increasing foreign revenues will increase the economic exposure of expenses which is more sensitive to exchange rates.
Increasing foreign expenses will increase the economic exposure which is more sensitive to exchange rate fluctuations.