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.

Question

Quizplus · Accepted Answer

By entering into a futures contract, an exporting firm can lock in a specific exchange rate for a future transaction, thus mitigating their exposure to any future fluctuations in the exchange rate. This can help the exporter plan and budget their future income with more certainty.

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