Which of the following is a method to mitigate exchange rate fluctuations?

• A. Fixing the price in the currency of the importer at the date of ordering
• B. Buying currency to cover specific orders
• C. Entering a contract to fix the exchange rate
• D. Trading in USD/EUR

Answer: (D)

The key idea is reducing exposure by using a settlement currency that is stable and widely traded. Trading in USD or EUR means invoices, payments, and receipts are settled in one of these major currencies, so there’s less need to convert between volatile currencies. With a dominant currency like USD or EUR, the exchange rate risk is minimized because both parties are operating in a currency with highly liquid markets and relatively lower short‑term fluctuations, making budgeting and cash flow more predictable.

Other approaches exist, such as agreeing prices in the importer’s currency at the time of order (which shifts risk to the exporter), or actively hedging specific amounts by buying foreign currency or locking in a rate with a forward contract (which are effective but require timing, costs, and management). In contrast, choosing to transact in a widely used, stable currency reduces currency mismatch across multiple orders and over time, offering a broad mitigation of exchange rate fluctuations.