Hedging translation exposure with forward contracts can backfire if the currency being hedged depreciates.

Question

Quizplus · Accepted Answer

Hedging translation exposure with forward contracts is a strategy to lock in exchange rates to protect against adverse currency movements. If the currency being hedged depreciates, the hedging strategy effectively shields the company from the negative impact of the depreciation, rather than backfiring.

Hedging Translation Exposure with Forward Contracts Can Backfire If the Currency