If an exporter believes the $A is going to rise in three months when it receives payment for a shipload of its good, it may decide to:
A) enter the short-term money market to hedge against this.
B) borrow money in the interim.
C) enter the futures market to hedge against this.
D) buy Treasury notes in the interim.

Question

Quizplus · Accepted Answer

Entering the futures market would allow the exporter to lock in a favorable exchange rate three months in advance, thus hedging against the potential rise in the $A. This provides the exporter with certainty and helps mitigate the risks associated with fluctuations in exchange rates. The other options, such as short-term money market, borrowing money, or buying Treasury notes, may not necessarily provide the same level of certainty or be effective in hedging against exchange rate fluctuations.

If an Exporter Believes the $A Is Going to Rise