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Oz Juice signed a contract with an overseas supplier for future purchases of pineapples at a set exchange rate for SUS - HSC - SSCE Business Studies - Question 14 - 2008 - Paper 1
Question 14
Oz Juice signed a contract with an overseas supplier for future purchases of pineapples at a set exchange rate for SUS. Which term best describes this financial str... show full transcript
Worked Solution & Example Answer:Oz Juice signed a contract with an overseas supplier for future purchases of pineapples at a set exchange rate for SUS - HSC - SSCE Business Studies - Question 14 - 2008 - Paper 1
Step 1
Which term best describes this financial strategy?
Answer
The financial strategy employed by Oz Juice is best described as Hedging. Hedging is a common practice used by businesses to protect against price fluctuations in currency exchange. By signing a contract at a set exchange rate, Oz Juice ensures that it can purchase pineapples at a fixed cost regardless of any future changes in the exchange rate. This strategy mitigates the risk of foreign exchange losses.