Which of the following statements are correct?
I. The usage of forward rates can help reduce the short-run exposure to exchange rate risk.
II. Accounting translation gains are recorded on the income statement as other income.
III. The long-run exchange rate risk faced by an international firm can be reduced if the firm borrows money in the foreign country where it has operations.
IV. Unexpected changes in economic conditions are classified as short-run exposure to exchange rate risk.

Question

Quizplus · Accepted Answer

Forward rates can be used to hedge against short-run exchange rate risk, and borrowing in the foreign country can help mitigate long-run exchange rate risk by matching liabilities with assets in the same currency.

Which of the Following Statements Are Correct