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

question 16

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:

Graduated Commission

A commission structure where the rate of commission increases with the level of sales or transactions completed.

Average Rate

The mean value of rates over a specified period or under certain conditions.

Mortgage Rate

The interest rate charged on a mortgage, typically expressed as an annual percentage.

GST

Goods and Services Tax, a type of value-added tax imposed on the majority of goods and services that are sold within the country for local use.