A U.S. company has euro-denominated receivables that it hedges with a forward sale of euros. The U.S. dollar strengthens against the euro.
Which statement is true?

Question

Quizplus · Accepted Answer

When the U.S. dollar strengthens against the euro, the value of euro-denominated receivables decreases, resulting in a loss on the receivables. The forward sale of euros acts as a hedge, and when the dollar strengthens, the forward contract would gain in value. Both the loss on the receivables and the gain on the forward contract are typically recognized in income, reflecting the hedging relationship and its impact on financial performance.

A US Company Has Euro-Denominated Receivables That It Hedges with a a Forward