Firms transacting business with foreign companies can lower exchange rate risk exposure by ____.

Question

Quizplus · Accepted Answer

Hedging is an effective way to lower exchange rate risk exposure as it involves using financial instruments such as forward contracts, options, and futures to mitigate the impact of currency fluctuations on a firm's revenues and expenses. Limiting transaction exposure and using the PPP to make exchange rate forecasts can also help to some extent, but they do not provide as much protection as hedging. Purchasing LIBORs (London Interbank Offered Rates) is not a relevant strategy to lower exchange rate risk exposure.

Firms Transacting Business with Foreign Companies Can Lower Exchange Rate