Assume you are an American importer who must pay 500,000 euros at the end of 60 days when you receive 1,000 cases of French wine at your warehouse in New York. If you do not hedge this transaction, you face exchange-rate risk. The best way to remove the risk of loss due to currency fluctuations is to
A. buy 500,000 euros in the forward exchange market for delivery in 60 days.
B. invest the dollar equivalent of 500,000 euros in a dollar-denominated deposit at a French bank.
C. sell 500,000 euros now in the spot market.
D. sell 500,000 euros in the forward exchange market for delivery after 60 days.
Answer: A
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