One way to hedge the future conversion of known sales is to enter into a forward currency contract at the time of the sale and lock in the anticipated conversion rate of the foreign currency to the home currency.

Question

Quizplus · Accepted Answer

By entering into a forward currency contract, the company can lock in the exchange rate and avoid the risk of fluctuations in the currency market. This strategy helps the company to hedge against the risk of currency exchange rate movements and enables them to accurately predict their cash flows.

One Way to Hedge the Future Conversion of Known Sales