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30 May, 13:05

Mr. Charles imports light bulbs from Norway to the United States. He has a contract to purchase from a Norwegian firm 10,000 light bulbs that he plans to sell in Chicago in 30 days. Assuming that futures trading exists between U. S. dollars and Norwegian Kroner, how can Mr. Charles use such a market to hedge foreign currency risk

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  1. 30 May, 13:07
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    Answer: future contracts can not be used to hedge in this circumstances

    Explanation: Hedge Contract is any contract where means of any exchange, swap, cap, forward, floor, collar, option or other similar agreement or arrangement entered into for the aim of reducing the exposure of a bunch Member to fluctuations in interest rates. In Mr Charles case he wouldn't be able to use future contracts as a way to hedge.
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