If you have a commitment to pay a friend in Britain 1,000 pounds in 30 days,and you are holding US dollars,you could remove the risk of loss due to the appreciation of the pound by:

Question

Quizplus · Accepted Answer

To remove the risk of loss due to the appreciation of the pound, one needs to buy pounds in the forward market. This is because buying pounds will lock in the exchange rate at the current rate, and ensure that the amount of US dollars needed to buy 1,000 pounds does not change due to fluctuations in the exchange rate. Therefore, buying pounds in the 30-day forward market is the best choice.

If You Have a Commitment to Pay a Friend in Britain