A U.S. firm receives a large amount of cash inflows periodically in Swiss francs as a result of exporting goods to Switzerland. It has no other business outside the United States. It could best reduce its exposure to exchange rate risk by:

Question

Quizplus · Accepted Answer

Issuing Swiss franc-denominated bonds allows the U.S. firm to use the Swiss franc cash inflows to service the debt, effectively hedging against exchange rate fluctuations between the Swiss franc and the U.S. dollar. This strategy matches the currency of the firm's liabilities (the bonds) with the currency of its foreign revenues, reducing exchange rate risk.

A US Firm Receives a Large Amount of Cash Inflows Periodically