Question

Mondo Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken, it could ____ to hedge the exchange rate risk on those exports.

Answer 1

The answer is 'sell future contracts on yen

Step-by-step explanation:

Futures contract is a form of derivative that is standardized. It occurs through the exchange rather than over the counter. It is safe from default or counterparty risk because the clearing house guarantees any loss.

Futures contract obligates the parties involved to either buy or sell the underlying security.

Because Mondo corporation is expecting some of its exports in yen and it is afraid of fall in exchange of yen relative to US dollar, to hedge the risk, it must sell future contracts on yen.