All of the following financial contracts may be used to hedge transaction exposure:
A) forward market hedge, money market hedge, option market hedge, swap market hedge.
B) forward market hedge, capital market hedge, option market hedge, swap market hedge.
C) forward market hedge, money market hedge, option market hedge, interest rate hedge.
D) forward market hedge, capital market hedge, option market hedge, interest rate hedge.

Question

Quizplus · Accepted Answer

All of the financial contracts listed in option A can be used to hedge transaction exposure. The forward market hedge involves locking in a future exchange rate for a specific date, while the money market hedge involves borrowing or lending money in different currencies to offset transaction exposure. The option market hedge involves buying or selling currency options to limit exchange rate risk, and the swap market hedge involves exchanging cash flows in different currencies to reduce transaction exposure.

All of the Following Financial Contracts May Be Used to Hedge