Conversation A:

 

A: Hey, Kevin! You’re a financial expert, aren’t you? I hear you know a lot about keeping the value of the currency.

B: Well, I don’t like to toot my own horn...but I did go to school for a few years to study stuff like that.

A: Excellent. Do you mind if I pick your brain for a second? 

B: For you, anything. What’s on your mind?

A: Our company exports some equipment to America, and we will receive $20 million after three months. We need to convert it into euro then. Now we are in fear of a devaluation of the U.S. dollar after three months. After all, we are at the mercy of the international forces over which we have absolutely no control.

B: I understand completely. A great many companies all over the world face the same problem. Luckily there is a solution. There is a whole body of financial products called derivatives. They are sophisticated tools for helping companies like you manage the financial risks in their business.

A: I ever heard that there is a method of protecting against the risk in the financial future market.

B: Yes, it is hedging which suits your situation. 

A: What should I do?

B: You can sign a three-month forward contract to sell $20 million while buying euro three months’ foreign exchange rate. In this way you can control your risk in foreign trade. 

A: I see. Thanks a lot. I will think it over. 

B: You're welcome.