Question

    A firm in India has to pay €5 million in 3 months.

    They expect the rupee to depreciate against the euro. Which of the following hedging tools will best protect them from this risk?
    A Currency futures contract Correct Answer Incorrect Answer
    B Open position in forex Correct Answer Incorrect Answer
    C INR fixed deposit Correct Answer Incorrect Answer
    D Unhedged exposure Correct Answer Incorrect Answer
    E Euro-denominated bonds Correct Answer Incorrect Answer

    Solution

    Futures contracts lock in the exchange rate, offering protection from currency fluctuations. By buying EUR futures, the company can secure the conversion rate, avoiding losses from rupee depreciation.

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