You are the CFO of a manufacturing company in the United States. Your company expects to receive €10 million Euro from a European customer in six months. The current exchange rate between US dollar and Euro is 1.23 USD/EUR. However, you are afraid that the Euro currency may depreciate against the US dollars in the next six months. You may use the Euro currency forward contract to hedge the exchange rate risk. Assume the 6-month Euro currency forward exchange rate is 1.22 USD/EUR. 

Should you buy or sell the Euro currency forward contract to hedge the exchange rate risk? 

A. Buy €10 million Euro forward contract today and then sell €10 million Euro forward contract six months later. 

B. Buy €10 million Euro in the six months forward contract. 

C. Sell €10 million Euro in the six months forward contract. 

D. We cannot use forward contract to hedge the risk in this case.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The correct answer is C Sell 10 million Euro in the six months forward contract To hedge ... View the full answer