Question
Backward Industries - a US based MNC - projects it will receive 50,000 Brazilian Real (BRZ) from a Brazilian customer in 3 months, however, it
Backward Industries - a US based MNC - projects it will receive 50,000 Brazilian Real (BRZ) from a Brazilian customer in 3 months, however, it is only 50% certain that the money will actually be paid out as the customer is currently in financial distress. Backward wants to reduce its exposure to foreign exchange rate risk. Which of the following is the best option for Backward in this situation?
A. | Tell your Brazilian customer not to pay | |
B. | Enter into a forward contract to buy Brazilian Real | |
C. | Buy a put option on the Brazilian Real | |
D. | Do not hedge this exposure | |
E. | Buy a put option on the US Dollar | |
F. | Buy a call option on the Brazilian Real |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started