An import-export business that finds itself in a "short" foreign-currency position risks a financial loss if:

Question

Quizplus · Accepted Answer

A short foreign-currency position means that the business owes more foreign currency than it holds. If the domestic currency depreciates more than expected, it means that the business will have to convert more of its domestic currency to pay off its foreign currency debt. This will result in a financial loss for the business. Therefore, option C is the correct choice. Option A is irrelevant because exchange rate forecasts are not always accurate. Option B is also irrelevant because foreign demand is not directly related to the business's foreign-currency position. Option D is incorrect because if the foreign currency depreciates, it means that the business will have to pay less of its domestic currency to settle its foreign debt, leading to a financial gain, not a loss.

An Import-Export Business That Finds Itself in a "Short" Foreign-Currency