Which of the following list would not be effective as a hedge for a Canadian company with a large number of transactions in Japan?
A)Japanese yen held by a Canadian bank.
B)Canadian funds held by a Japanese bank.
C)A forward contract for the purchase of yen.
D)A forward contract for the sale of yen.

Question

Quizplus · Accepted Answer

Holding Canadian funds in a Japanese bank would not be effective as a hedge because the Canadian company would still be exposed to currency risk when converting these funds into yen to complete transactions in Japan. The other options provide effective hedging strategies by either holding yen or using forward contracts to lock in exchange rates. Therefore, the best choices would be A, C, or D.

Which of the Following List Would Not Be Effective as a Hedge