Answer (A) is correct . An individual who purposely accepts exchange rate risk is a speculator. Speculators buy and sell foreign currencies in anticipation of favorable changes in rates.
Answer (B) is incorrect because An arbitrageur is someone who simultaneously buys foreign currency in one market and sells in another market at a slightly higher price. Thus, the arbitrageur’s risk is slight.
Answer (C) is incorrect because Hedging avoids the risk of foreign currency transactions for those who do not seek to gain from fluctuations in exchange rates. Hedging is the sale or purchase of a forward exchange contract to offset a possible exchange rate loss. When a forward exchange contract is intended and is effective as an economic hedge against an exposed net asset or net liability position (e.g., an outstanding receivable or liability denominated in a foreign currency), any exchange gain or loss on the forward contract will offset any exchange gain or loss on the exposed net asset or net liability position. Thus, no exchange gain or loss will result.
Answer (D) is incorrect because Exporters and importers are likely to engage in hedging to avoid exchange rate risk.
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