Traders on the foreign exchange market use ___________ to eliminate or cover the risk of loss on export or import orders denominated in foreign currencies.

Question

Quizplus · Accepted Answer

Forward contracts allow traders to lock in an exchange rate for a future date, thus hedging against the risk of currency fluctuations. Currency options and currency futures contracts also serve a similar purpose, but they may be more complex and not as widely used in this context. Money-market hedges are a type of short-term borrowing used by corporations to cover cash flow needs, and are not directly relevant to currency risk management in FX trading.

Traders on the Foreign Exchange Market Use ___________ to Eliminate