A firm exposed to exchange rate risk can hedge its risk by all of the following except:

Question

Quizplus · Accepted Answer

Speculating in foreign currency would not hedge the exchange rate risk, but rather increase it as it involves taking a position on the future direction of exchange rates. A firm can hedge its exchange rate risk by using the forward exchange market, where it can lock in a future exchange rate, borrowing in international markets denominated in the same currency as the expected revenue, or utilizing foreign currency futures markets to buy or sell currency at a fixed price in the future.

A Firm Exposed to Exchange Rate Risk Can Hedge Its