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What is Currency Risk Management Strategies about?

A US firm imports goods from the UK worth 1 million GBP. The spot exchange rate today (T0) is 1 GBP = 1.7120 USD and the 1-month forward rate is 1 GBP = 1.7255 USD. There are two hypotheses for the spot rate in 1 month (T1): 1) 1 GBP = 1.7440 USD or 2) 1 GBP = 1.6850 USD. The firm buys GBP forward to lock in the exchange rate and avoid potential losses from an unfavorable spot rate change.

Author

JaPuron

Language

EN