5. A Lebanese company ordered goods from the US for $100,000 on December 31, 2020 to be paid on February 28, 2021.

Suppose the exchange rates were as follows:

December 31, 2020 1 $ = 2,000 LL

February 28, 2021 1 $ = 10,000 LL

How much would the Lebanese company need in LL to pay for the $100,000 on February 28, 2021.

What should the company have done in order to avoid paying this big sum of money on February 28, 2021?

$100,000 x 10,000 = 1,000,000,000 LL on Feb 28,2021

2020 it would have paid 10,000 x 2,000 = 20,000,000

The difference is 980,000,000 LL because of currency fluctuation.

Because of those issued of varied currency rates, companies need to hedge their transactions.