How Can a Currency Futures Contract Be Used as a Hedge

question 126

Multiple Choice

How can a currency futures contract be used as a hedge against a potentially dramatic appreciation of a foreign currency that a U.S. company is expecting to convert into U.S. dollars?

• A) The U.S. company should sell the foreign currency using futures contracts.
• B) The U.S. company should buy more foreign currency futures contracts than it should sell.
• C) The U.S. company should buy the foreign currency using futures contracts.
• D) This is a standard business situation that would be favorable if it were to happen, so no hedge is needed.

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