A balance sheet hedge requires that the amount of exposed foreign currency assets and liabilities:
A) have a 2:1 ratio of assets to liabilities.
B) have a 2:1 ratio of liabilities to assets.
C) have a 2:1 ratio of liabilities to equity.
D) be equal.

Question

Quizplus · Accepted Answer

A balance sheet hedge aims to offset the impact of changes in exchange rates on the overall value of a company's assets and liabilities denominated in foreign currency. For this reason, the amount of exposed foreign currency assets and liabilities must be equal, so that any fluctuation in the exchange rate will have an equal impact on both sides of the balance sheet. Therefore, answer D is the correct choice.

A Balance Sheet Hedge Requires That the Amount of Exposed