One possible reason for a balance sheet hedge could be because the firm has debt covenants or bank agreements that state the firm's debt/equity ratios will be maintained within specific limits.

Question

Quizplus · Accepted Answer

A balance sheet hedge is a strategy used by firms to manage their risk exposure to changes in exchange rates. One of the reasons why a firm may use this strategy is to maintain their debt/equity ratios within specific limits as required by their debt covenants or bank agreements. Therefore, the statement is true.

One Possible Reason for a Balance Sheet Hedge Could Be