Which of the following hedging strategies would a business most likely use?
A)An importer will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net asset position.
B)An importer will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position.
C)An exporter will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net liability position.
D)An exporter will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position.

Question

Quizplus · Accepted Answer

A business would most likely use a hedging strategy to reduce their exposure to foreign exchange risk. In option B, an importer is hedging their foreign denominated accounts payable using forward contracts to hedge their exposed net liability position. By doing so, they are protecting themselves against potential currency fluctuations and ensuring that they will be able to pay their bills at a predictable cost. Option A, C, and D are not the best choices because they all involve hedging accounts receivable, which may not be as critical as hedging accounts payable.

Which of the Following Hedging Strategies Would a Business Most