Question

A U.S.-based MNC that frequently imports raw materials from Canada. It is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future.

1. Which of the following is an appropriate hedging technique under these circumstances?
A. sell Canadian dollars forward.
B. purchase Canadian dollar futures contracts.
C. buy Canadian dollar put options.
D. sell Canadian dollar call options.

Answer 1

B. purchase Canadian dollar futures contracts.

Step-by-step explanation:

• when the company is concerned about the appreciation of the Canadian dollar than it should buy a futures contract to buy the Canadian dollar in the future
• so that the Canadian dollar appreciates the hedge due to the futures contract.

so that here correct option is B. purchase Canadian dollar futures contracts.