Question

If a U.S. firm desires to avoid the risk from exchange rate fluctuations and it will need C$200,000 in 90 days to make payment on imports from Canada, it could:_______

A) obtain a 90-day forward purchase contract on Canadian dollars.
B) obtain a 90-day forward sale contract on Canadian dollars.
C) purchase Canadian dollars 90 days from now at the spot rate.
D) sell Canadian dollars 90 days from now at the spot rate.

Answer 1

A) obtain a 90-day forward purchase contract on Canadian dollars.

Step-by-step explanation:

-A forward purchase contract is an agreement in which a party accepts to purchase an asset at a establish price at a future date.

-A forward sale contract is an agreement in which a party accepts to sell an asset at a establish price at a future date.

-Purchase the currrency 90 days from now at the spot rate means purchasing it at the market value in that day.

-Sell Canadian currency 90 days from now at the spot rate means selling it at the market value in that day.

According to this, if a U.S. firm desires to avoid the risk from exchange rate fluctuations and it will need C$200,000 in 90 days to make payment on imports from Canada, it could obtain a 90-day forward purchase contract on Canadian dollars.