A business has a contractual requirement to pay a sum of $6m in a foreign currency in 12 months time. It takes out a forward foreign exchange contract for this sum.

A business has a contractual requirement to pay a sum of $6m in a foreign currency in 12 months time. It takes out a forward foreign exchange contract for this sum.

This is an example of:
A . translation risk avoidance
B . economic risk reduction
C . arbitrage
D . hedging

Answer: D