An international ﬁrm which imports raw materials can reduce its _____ exposure to _____ rate risk by entering into a forward contract.

Question

Quizplus · Accepted Answer

A forward contract can help reduce the exposure to exchange rate risk in the short-run, as the contract locks in a predetermined exchange rate for a future transaction. In contrast, a long-term or total exposure cannot be fully mitigated by a forward contract. Inflation and interest rate risks are also not directly addressed by a forward contract.

An International ﬁRm Which Imports Raw Materials Can Reduce Its