Exchange Rate Fluctuations Discussion Forum [WLOs: 1, 2, 3, 4, 5, 6] [CLOs: 1, 2, 3, 4]
Prior to beginning work on this discussion forum, read Chapters 6 and 7 of the text.
A company makes an export sale denominated in a foreign currency and allows the customer one month to pay. Under the two-transaction perspective, accrual approach, how does the company account for fluctuations in the exchange rate for the foreign currency? Why might a company prefer a foreign currency option rather than a forward contract in hedging a foreign currency firm commitment? Why might a company prefer a forward contract over an option in hedging a foreign currency asset or liability?