An Australian company that is exposed to FX risk as the result of having a USD foreign currency receivable due in 3 months can enter into:
A) a 3 month forward exchange contract to sell USD forward.
B) a forward exchange contract to sell AUD forward.
C) a 3 month futures contract to sell USD.
D) a 3 month currency swap to sell USD and buy AUD.

Question

Quizplus · Accepted Answer

The best choice for the Australian company with a USD foreign currency receivable due in 3 months is to enter into a 3 month forward exchange contract to sell USD forward. This will help the company lock in the exchange rate at which they will sell USD and receive AUD in three months, reducing the FX risk they are exposed to.

An Australian Company That Is Exposed to FX Risk as the Result