If a U.S.company enters into a purchase agreement with a European company and the contract is denominated in euros,then direct exchange rate risk exists for both companies.

Question

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Direct exchange rate risk primarily affects the party that will receive payment in a foreign currency, in this case, the U.S. company receiving euros, as the value of the payment in their home currency (USD) can fluctuate with the exchange rate. The European company, receiving payment in its home currency, does not face this risk.

If a USCompany Enters into a Purchase Agreement with a European Company