Johnson Co. has 1,000,000 euros as payables due in 30 days, and is certain that euro is going to appreciate substantially over time. Assuming the firm is correct, the ideal strategy is to:

Question

Quizplus · Accepted Answer

As Johnson Co. anticipates euro appreciation over time, it should purchase euros forward to lock in the current exchange rate and avoid potential losses due to currency fluctuations. Selling euros forward or purchasing euro currency put options would result in potential losses if the euro appreciates as predicted. Purchasing euro currency call options or remaining unhedged would not provide protection against potential losses due to euro appreciation.