When exposures are covered using fixed- rate instruments, the business confronts the problem of regret; if the exchange rate moves in favour of the business, it gets no advantage from this movement.

Question

Quizplus · Accepted Answer

When a business uses fixed-rate instruments to hedge against exchange rate risk, it locks in a specific rate. If the exchange rate moves favorably, the business cannot benefit from the favorable movement because it is committed to the fixed rate.

When Exposures Are Covered Using Fixed- Rate Instruments, the Business