It is much easier for a firm to hedge non-contractual rather than contractual exchange rate risk.

Question

Quizplus · Accepted Answer

Contractual exchange rate risk, also known as transaction risk, can be more easily hedged through financial instruments such as forwards, futures, options, and swaps, because the amounts and timing are known. Non-contractual exchange rate risk, or economic exposure, involves anticipated but not yet contracted future cash flows, making it more uncertain and difficult to hedge.

It Is Much Easier for a Firm to Hedge Non-Contractual