Chartered Investment Manager (CIM) Practice Exam · Question
A Canadian corporation expects to receive a large payment in six months in USD for a product export. To mitigate currency risk, they enter into a futures contract to convert USD to CAD at a predetermined rate. This is an example of:
Hedging involves using financial instruments, such as futures contracts, to offset the risk of adverse price or rate movements in an underlying asset or currenc
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Question: A Canadian corporation expects to receive a large payment in six months in USD for a product export. To mitigate currency risk, they enter into a futures contract to convert USD to CAD at a predetermined rate. This is an example of:
Answer options:
- Arbitrage.
- Speculation. ✅ Hedging.
- Scalping.
Correct answer: Hedging.
Explanation: Hedging involves using financial instruments, such as futures contracts, to offset the risk of adverse price or rate movements in an underlying asset or currency exposure.
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