Like a forward market hedge, a money market hedge also involves a contract and a source of funds to fulfill that contract. In this instance, the contract is a loan agreement.

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A money market hedge involves borrowing the amount of foreign currency needed to fulfill a future payment obligation and investing that borrowed amount in the foreign currency to earn enough interest to cover the future payment. This process involves a loan agreement, which is the source of funds to fulfill the contract, similar to a forward market hedge.

Like a Forward Market Hedge, a Money Market Hedge Also