A US company has an AUD 1 million receivable in two months.How can the US company hedge the foreign currency receivable? It could:
A) buy AUD in the spot market.
B) sell AUD in the forward market.
C) sell USD in the spot market.
D) buy USD in the forward market.

Question

Quizplus · Accepted Answer

Selling AUD in the forward market allows the US company to lock in the exchange rate and protect against any potential currency fluctuations over the two-month period until the receivable is due. Buying AUD in the spot market or selling USD in the spot market would not provide the same level of protection, while buying USD in the forward market would not directly hedge the AUD receivable.

A US Company Has an AUD 1 Million Receivable in Two