Question

Trader's Paradise is a global merchant that sells a variety of products. The company operates in forty-eight different countries (some developed, some developing) and some former communist countries. The company faces substantial risks given the differing conditions in foreign exchange markets. When doing business with former communist countries, Trader's Paradise insists on getting paid in a currency that can be traded freely in the foreign exchange market. The price of this currency is determined by the forces of supply and demand. Which of the following is the mode of payment illustrated in this scenario?

a) community currency.
b) private currency.
c) local currency.
d) convertible currency.

Answer 1

D) convertible currency.

Step-by-step explanation:

Trader's Paradise is being paid with a convertible currency, which refers to a currency that can be easily traded in foreign exchange markets and is not subject to government restrictions.

What Trader's Paradise is doing is called currency hedging, which means that they are protecting themselves from currency risks by signing contracts in different currencies and probably also with anticipated exchange rates. This way the risks associated with changes in the currency exchange rate of local currencies will not affect the company severely. Risks cannot be eliminated, but they can be reduced, and that is what hedging is about.

Answer 2

The answer to this question is option D. Convertible currency

Step-by-step explanation:

Trader's Paradise insisting on getting paid in a currency that can be traded freely in the foreign exchange market depict the use of a convertible currency.

It is a currency that can be readily bought or sold without government restrictions, in order to purchase another currency. they are currency that can be traded freely in the foreign exchange market.

Hence the answer is D. Convertible currency