Question

Assume a U.S. firm has to pay for Korean imports in 60 days. It expects that the Korean won will depreciate, but it still wants to hedge its risk. What type of hedging is most appropriate in this situation?

1) Buy dollars forward.
2) Sell dollars forward.
3) Purchase call option.
4) Purchase put option.

Answer 1

The most appropriate hedging strategy for the U.S. firm in this situation would be to buy dollars forward.

Step-by-step explanation:

The most appropriate hedging strategy for the U.S. firm in this situation would be to buy dollars forward. By buying dollars forward, the firm can lock in a specific exchange rate for the future when paying for the Korean imports. This way, even if the Korean won depreciates, the U.S. firm will not be affected as they have already secured the desired exchange rate.