An example of an operational hedging strategy against foreign exchange risk is ________.
A) using a forward contract to establish a fixed exchange rate for future transactions
B) using local debt to balance local assets
C) using a foreign currency option to ensure access to foreign currency at a fixed exchange rate for a specific period of time
D) not using leads and lags for intercompany payments

Question

Quizplus · Accepted Answer

Using local debt to balance local assets is an example of operational hedging strategy. This involves borrowing funds locally in the foreign currency to support local operations and assets. This strategy can help offset foreign exchange risk by reducing the need for external funding and reducing exposure to exchange rate fluctuations. The other options (A, C, and D) are examples of financial hedging strategies.

An Example of an Operational Hedging Strategy Against Foreign Exchange