A US Manufacturer Arranges to Purchase Parts from a German Supplier

Multiple Choice

A U.S. manufacturer arranges to purchase parts from a German supplier for 500,000 euros in six months. The U.S. manufacturer is concerned that the dollar will depreciate against the euro, meaning the dollar cost of the 500,000 euros will rise. What should the U.S. manufacturer do?

A) lobby the Fed to lower interest rates on six-month T- bills
B) buy a futures contract that fixes the dollar cost of 500,000 euros in six months
C) buy an exchange rate contract that pegs the interest rate to the discount rate on interbank loans
D) sell a naked option to cover the output spread