A U.S. company that purchases goods on credit from a German supplier can protect itself against transaction exchange risk by ____.

Question

Quizplus · Accepted Answer

By executing a contract in the forward exchange market, the company can lock in a specific exchange rate for the future, eliminating the risk of currency fluctuations. Additionally, by borrowing U.S. funds and investing in interest-bearing German securities, the company can earn a return on its investment while also offsetting any potential losses from the transaction exchange risk. Therefore, the best choice(s) is executing a contract in the forward exchange market and borrowing U.S. funds and investing in interest-bearing German securities.

A US Company That Purchases Goods on Credit from a German