Balance sheet hedge is justified if

Question

Quizplus · Accepted Answer

Balance sheet hedge is often used to mitigate the potential adverse impact of currency fluctuations on the assets and liabilities of a foreign subsidiary. If the foreign subsidiary country has high country risk and is facing potential hyperinflation, the balance sheet hedge can be justified as it will protect the subsidiary's assets and liabilities from currency fluctuations, and ensure their solvency. The other options do not provide sufficient justification for the use of balance sheet hedge.

Balance Sheet Hedge Is Justified If