Hedging is accomplished by combining the exposed asset with a hedge asset to create a two-asset portfolio in which the two assets react in relatively equal directions to an exchange rate change.

Question

Quizplus · Accepted Answer

Hedging is typically accomplished by combining the exposed asset with a hedge asset to create a two-asset portfolio in which the two assets react in opposite directions to an exchange rate change, thereby reducing the risk.

Hedging Is Accomplished by Combining the Exposed Asset with a Hedge