An example of hedging to control currency exchange rate risk is:
A)A wine distributor currently importing wine made from the 2010 vintage.
B)A wine distributor paying for wine today that will be delivered in three years.
C)A wine distributor that visits the vineyard where wine is made before buying the vintage.
D)A wine distributor that settles all of its bills with euros.

Question

Quizplus · Accepted Answer

A wine distributor paying for wine today that will be delivered in three years is an example of hedging to control currency exchange rate risk. This is because the distributor is locking in the exchange rate today, so that they will not be affected by any fluctuations in the exchange rate in the future.

An Example of Hedging to Control Currency Exchange Rate Risk