The most popular instrument for hedging currency risk is a ______.
A) currency forward
B) currency futures
C) money market hedge
D) currency option
E) currency swap

Question

Quizplus · Accepted Answer

Currency forwards are the most popular instrument for hedging currency risk. They allow companies to enter into a contract to buy or sell a specified amount of currency at a future date and at a fixed exchange rate. This helps them to lock in a favorable exchange rate, thereby reducing their exposure to currency risk. While other instruments such as currency futures, options, swaps, and money market hedges are also used for hedging currency risk, currency forwards remain the most popular choice due to their simplicity, flexibility, and ability to be tailored to specific needs.

The Most Popular Instrument for Hedging Currency Risk Is a ______