To hedge translation exposure, MNCs could ____ that their foreign subsidiaries receive as earnings to create a cash outflow in the currency to offset the earnings received in that currency.

Question

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To hedge translation exposure, MNCs could sell the currency forward. This would create an obligation to sell the currency on a future date at a predetermined rate, which would offset the earnings received in that currency. Futures contracts could also be used, but the purchase of the currency forward would be a more direct and simpler approach. Purchasing the currency forward or purchasing futures contracts would create a cash inflow in the currency, which would not effectively offset the earnings received in that currency.

To Hedge Translation Exposure, MNCs Could ____ That Their Foreign