A U.S. firm agrees to import textiles from Hong Kong and pay in 90 days. The invoice requires payment in Hong Kong dollars. The U.S. importer could hedge this currency risk by buying the HK dollar forward.

Question

Quizplus · Accepted Answer

By buying the HK dollar forward, the U.S. importer can lock in a predetermined exchange rate for the payment in 90 days, thus eliminating the risk of fluctuations in the exchange rate between the U.S. dollar and the Hong Kong dollar.

A US Firm Agrees to Import Textiles from Hong Kong and and Pay