You are importing TV sets worth ¥10 million from a Japanese manufacturer, and this amount is payable after 6 months. You can hedge your exchange risk by:

Question

Quizplus · Accepted Answer

The best option to hedge against exchange rate risk in this scenario would be to buy Japanese yen in the forward market. By doing this, you can ensure that you lock in a favorable exchange rate for the future, eliminating the risk of fluctuations in the currency markets. This will help you to avoid any potentially negative effects that may be caused by changes in the value of the yen relative to your own currency. Selling yen in the forward market would not be an effective strategy, as it would not provide protection against depreciation of the yen. Borrowing yen would also not be a suitable option, as it would create additional financial liabilities that could increase your exposure to exchange rate risk. Doing nothing is not recommended, as it would leave you vulnerable to the uncertainties of the currency markets.

You Are Importing TV Sets Worth ¥10 Million from a Japanese