Question

There are three types of hedges that a firm can use to protect itself against transaction exposure. Choose one type of hedge and explain it. Forward market hedge,Money market hedge and Options market hedge

Answer 1

A forward market hedge is that type of hedge that helps the firm to involve foreign exchange forwards in the organization. The main task of this forward market hedge is to purchase foreign currency at a forward exchange rate with the country or a firm you are dealing with. It is affected by the interest rates which is set by both the country's and will affect the price set by them in future deals because the rate of the dollar fluctuates every day and therefore the price which was on the date of the agreement is not the same on the date of dispatching. To solve this matter, it was decided that the price which will be on dispatched will be the final price of the dollar and it will be considered for the agreement between the two countries ready to do business together. Their business includes exchanging for various assets which other country feels that they are in need then they tend to come in an agreement to purchase that thing from some other country. It may include oil, natural gases, weapons, etc as the agreements between countries tend to improve their relationships too.