The Goudge Grilling Company has just ordered a shipment of grills from Frankfurt.Payment for the grills must be in euros when the grills are delivered.Euros have changed in value in the last 30 days.They have gone from $1.42 to $1.44.If this trend continues which of the following currency contracts can help the Goudge Grilling Company hedge their currency risk?

Question

Quizplus · Accepted Answer

A long-hedge currency futures contract would be the best choice for the Goudge Grilling Company to hedge their currency risk. By taking a long position in a currency futures contract, they are locking in the exchange rate at the current rate, in this case, $1.44 per euro. If the euro continues to appreciate in value, the company will have already locked in the more favorable rate, mitigating their risk.

The Goudge Grilling Company Has Just Ordered a Shipment of Grills