How can a futures contract mitigate exchange rate risk for anexporting firm?
A)Exporters can pin down the exact exchange rate they want to trade at and ensure a certain income stream.(True Answer
)Correct
B)Exporters can avoid international trade and enter into contracts for domestic items only.
C)The contract does so by allowing exporters to avoid political risks associated with exchange rate volatility.
D)The contract does so by allowing exporters to trade in alternate stable currencies.

Question

Quizplus · Accepted Answer

By using a futures contract, exporters can lock in a specific exchange rate for a future transaction. This allows them to mitigate the risk of exchange rate fluctuations, ensuring a certain income stream for their exports.

How Can a Futures Contract Mitigate Exchange Rate Risk for Anexporting