Purchasing an option to buy foreign currency at a predetermined exchange rate in order to reduce exchange risk is called:
A) transfer pricing.
B) hedging.
C) translating.
D) cross-listing.

Question

Quizplus · Accepted Answer

This practice is called hedging, which involves taking a position in the market that offsets potential losses in another position. By purchasing an option to buy foreign currency at a predetermined exchange rate, a company can protect itself against adverse exchange rate movements and reduce exchange risk. Transfer pricing refers to the internal pricing of goods or services within a multinational corporation. Translating is the process of converting financial statements from one currency to another for reporting purposes. Cross-listing refers to a company listing its shares on a foreign stock exchange alongside its domestic exchange.

Purchasing an Option to Buy Foreign Currency at a Predetermined