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

question 36

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 mitigates exchange rate risk by allowing exporters to avoid political risks associated with exchange rate volatility.
• D) The contract mitigates risk by allowing exporters to trade in alternate stable currencies.

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Definitions:

Undated

Not having a specified date, which can pertain to documents, events, or items that lack a temporal reference.

Nonnegotiable

Referring to an instrument, term, or condition that cannot be transferred or altered by agreement between the parties involved.

Maker

The party in a financial instrument, like a check or promissory note, who is responsible for the payment of the amount specified.

Negotiable Instrument

A document guaranteeing the payment of a specific amount of money, either on demand or at a set time, and to a specific person or bearer.