Selling pounds in the forward exchange market will not help the importer. If the importer sells pounds in the forward market for delivery at a later date, the importer will have to buy the British pounds (or a forward contract to buy the British pounds) in order to fulfill the forward contract. This will do nothing to help the importer, and it will hurt the importer if the U.S. dollar does depreciate against the British pound because it will cost more to buy the British pounds in the future. Furthermore, the importer needs to have the British pounds in 3 months to pay the British invoice.
This answer is somewhat correct in that the U.S. importer will need to sell dollars. However, more than the need to sell dollars, they need to buy pounds in the forward exchange market. Since this choice makes no mention of the purchase of pounds, it is only half correct.
Buying dollars in the futures market will not help the importer because they need to sell their dollars to buy pounds in order to settle the invoice in the future.
By purchasing pounds now, the American importer is able to determine now the amount of dollars that will be required to settle that invoice when it comes due. As such, they are protected against the situation in which the dollar depreciates against the pound. If the dollar were to depreciate and the importer had not entered into this agreement, they would need to spend more dollars in order to settle the invoice.
|
