If a U.S. firm will need C$200,000 in 90 days to pay for imports from Canada and it wishes to avoid the risk from exchange rate fluctuations, it could:

Question

If a U.S. firm will need C$200,000 in 90 days to pay for imports from Canada and it wishes to avoid the risk from exchange rate fluctuations, it could:​

Quizplus · Accepted Answer

Purchasing a 90-day forward contract on Canadian dollars allows the U.S. firm to lock in a specific exchange rate and eliminate the risk of fluctuations in the exchange rate when it is time to pay for the imports. This ensures that the firm will have the necessary amount of Canadian dollars to make the payment in 90 days without being subject to the uncertainty of the exchange rate.

If a US Firm Will Need C$200,000 in 90 Days to Pay