00:01
A european -based company known that is due to pay a certain amount of us dollars in three months time, which of the following derivative contracts is appropriate for hedging against the foreign exchange risk, right, against the foreign exchange risk, right.
00:26
So, basically, you can say option a is correct, i'm sorry, option c is correct, option c, which says a long position on a euro -usd three -month forward contract.
01:01
Why? i tell you why.
01:03
Because a forward contract is a derivative contract, right, so that allows two parties to agree exchange currencies at a predetermined exchange rates, predetermined exchange rates.
01:18
So, there is the risk at the future date.
01:21
So, there is very less risk.
01:24
So, you can say that hedging against the foreign exchange risk, right.
01:29
So, in case of the european -based company want to hedge against the foreign exchange risk of having to pay a certain amount of us dollars in three months time, so you can say that by taking a long position on euro -usd three -month forward contract, the company can lock in a specific exchange rate for a future delivery of the us dollars, right...