A clothing retailer places an order for goods from an overseas supplier for delivery within one month - HSC - SSCE Business Studies - Question 10 - 2005 - Paper 1
Question 10
A clothing retailer places an order for goods from an overseas supplier for delivery within one month. The retailer negotiates to pay the account at the exchange rat... show full transcript
Worked Solution & Example Answer:A clothing retailer places an order for goods from an overseas supplier for delivery within one month - HSC - SSCE Business Studies - Question 10 - 2005 - Paper 1
Step 1
Identify the retailer's action
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Answer
The retailer is negotiating to pay at the exchange rate that exists at the time of the order. This means they are attempting to protect themselves from potential fluctuations in the currency value over the month until delivery.
Step 2
Choose the correct option
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Answer
This action of securing the exchange rate now while agreeing to make the payment later is known as hedging. Therefore, the correct answer is (A) Hedging.
