If a US Firm Desires to Avoid the Risk from Exchange Rate

question 78

Multiple Choice

If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need C$200,000 in 90 days to make payment on imports from Canada, it could:

• A) obtain a 90-day forward purchase contract on Canadian dollars.
• B) obtain a 90-day forward sale contract on Canadian dollars.
• C) purchase Canadian dollars 90 days from now at the spot rate.
• D) sell Canadian dollars 90 days from now at the spot rate.

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Definitions:

Social Facilitation

The tendency for people to perform differently when in the presence of others than when alone, often improving on simple or well-rehearsed tasks.

Groupthink

A psychological phenomenon that occurs within a group of people in which the desire for harmony in decision-making results in an irrational or dysfunctional outcome.

Group Polarization

The tendency of a group to make decisions that are more extreme than the initial inclination of its members.

Risky Shift

A phenomenon in group decision-making processes where groups tend to make riskier decisions compared to individuals.