In a forward market hedge, the firm sells forward its foreign currency receivables for its home currency, matching the time forward to the foreign currency receivable's due date.

Question

Quizplus · Accepted Answer

This statement accurately describes a forward market hedge, where a firm sells its foreign currency receivables in the forward market to eliminate the risk of exchange rate fluctuations. The transaction involves selling the foreign currency at a predetermined exchange rate and maturity date, effectively locking in the exchange rate for the future receivable.

In a Forward Market Hedge, the Firm Sells Forward Its