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 action taken by the retailer
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Answer
The retailer is entering into an agreement to lock in the exchange rate applicable at the time of the order. This action is aimed at mitigating the risk of currency fluctuations that could occur before the payment is made.
Step 2
Determine the correct term
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Answer
This strategy of securing the current exchange rate to protect against future changes is known as 'Hedging'. It allows the retailer to minimize potential losses due to adverse movements in exchange rates.
Step 3
Select the answer choice
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Answer
'(A) Hedging' is the best answer as it accurately describes the retailer's action of negotiating the exchange rate at the time of the order.
