How Can a Futures Contract Mitigate Exchange Rate Risk for an Exporting

question 15

Multiple Choice

How can a futures contract mitigate exchange rate risk for an exporting firm?

• A) Exporters can pin down the exact exchange rate they want to trade at and ensure a certain income stream.
• B) Exporters can avoid international trade and enter into contracts for domestic items only.
• C) The contract does so by allowing exporters to avoid political risks associated with exchange rate volatility.
• D) The contract does so by allowing exporters to trade in alternate stable currencies.

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Definitions:

CAM Plants

Plants that use Crassulacean Acid Metabolism, a photosynthetic adaptation that allows them to minimize water loss by opening their stomata at night.

Stomata

Tiny openings or pores in plant leaves and stems that control gas exchange for photosynthesis and respiration.

Photosynthetic Component

Part of a cell or organism that is involved in photosynthesis, the process by which green plants and some other organisms use sunlight to synthesize nutrients from carbon dioxide and water.

Chlorophyll Molecules

The green pigments found in the chloroplasts of plants, algae, and certain bacteria, crucial for photosynthesis by capturing light energy.