If the foreign currency is expected to appreciate to a value in excess of the appropriate forward rate:
A) a hedger will hedge foreign payables by buying the foreign currency forward
B) a hedger will hedge foreign payables by selling the foreign currency forward
C) a hedger will not hedge foreign payables
D) a hedger will regret his decision to hedge foreign payables if the foreign currency is higher than the forward rate at maturity

Question

Quizplus · Accepted Answer

DA) When expecting the foreign currency to appreciate, buying the currency forward locks in a price now, preventing higher future costs. D) If the currency appreciates beyond the forward rate, any hedger would indeed regret hedging as they could have benefited from the higher rate at maturity.

If the Foreign Currency Is Expected to Appreciate to a Value