Final answer:
A fixed price contract is considered a method of transferring risk, as it allows a firm to predict the value of a contract in its currency, hence mitigating uncertainty about foreign exchange rate fluctuations.
Step-by-step explanation:
When a U.S. firm enters into a fixed price contract to deliver products and receive payment in a foreign currency, such as euros, it faces the risk of currency fluctuations. To ensure the firm knows exactly what the contract will be worth in U.S. dollars, it may use a financial transaction known as hedging. By signing a hedging contract and paying a fee, the firm locks in a guaranteed exchange rate, thus transferring the currency risk to another party, typically a financial institution or brokerage company. This way, should the value of the euro fall, the firm is protected, but if the euro value rises, the firm will have paid a fee for unnecessary protection.