To reduce or eliminate exchange rate risk, international buyers usually hedge future payments with:

Question

Quizplus · Accepted Answer

To reduce or eliminate exchange rate risk, international buyers usually hedge future payments with forward contracts. This involves fixing the exchange rate at the time the contract is made, thereby eliminating the uncertainty of future exchange rate fluctuations. Spot rates and forward rates are used to determine the current and future exchange rates, respectively, but they do not offer any protection against exchange rate risk. Negotiations with the seller may lead to a fixed price in the buyer's local currency, but this does not eliminate the risk of exchange rate fluctuations between the time of agreement and the time of payment.

To Reduce or Eliminate Exchange Rate Risk, International Buyers Usually