Question

The following is an example of Radio Shack hedging its foreign currency risk: A) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to buy yen. B) needing to pay 9,000 yenper radio to its suppliers in a month, Radio Shack makes a forward-exchange deal to sell yen. C) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack buys yen at a spot-exchange 1 month from now. D) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen at a spot-exchange 1 month from now. E) needing to pay 9,000 yen per radio to its suppliers in a month, Radio Shack sells yen in a forward-exchange deal.

Answer 1

A. Needing to pay 9000 yen per radio to its suppliers in a month, Radio shack makes a forward-exchange deal to buy yen.

Step-by-step explanation:

To hedge, for a company, means to reduce foreign-exchange risk regarding currencies from both parties. In this case, the only option that displays this action is Radio shack making a forward-exchange deal to buy yen, as this "forward-exchange deal" means that both parties agree on an arrangement to exchange their currencies at a set time in the future, avoiding fluctuation of the value of such currencies.