US CMA Part 2 · Chapter 4 · Question 15 of 15
A US exporter will receive EUR 500,000 from a German customer in 90 days. Which action hedges the exporter's transaction exposure?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Enter into a 90-day forward contract to sell EUR 500,000 for US dollars
Explanation
The exporter has a euro receivable and loses if the euro weakens. Selling the euros forward locks in the dollar amount it will receive. Buying euros forward or buying a euro call option would add to, not offset, its long euro position. A put option on euros, or borrowing euros now and converting them to dollars (a money market hedge), would also be valid hedges.
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