Exchange rate risk can be eliminated with a bank contract for delivery of the foreign currency when needed at a fixed exchange rate. The process is called pledging because the bank pledges to accept the exchange rate risk for a fee.

Question

Quizplus · Accepted Answer

The process is called hedging, not pledging. Hedging involves using financial instruments or market strategies to offset the risk of any adverse price movements.

Exchange Rate Risk Can Be Eliminated with a Bank Contract