A balance sheet hedge seeks to
A)eliminate any mismatch of net assets and net liabilities denominated in the same currency.
B)transfer accounting exposure to transaction exposure.
C)create cumulative translation adjustment.
D)none of the options

Question

Quizplus · Accepted Answer

A balance sheet hedge aims to eliminate any mismatch of net assets and net liabilities denominated in the same currency. This is achieved by using financial instruments such as forwards, options, and swaps to hedge against the potential risks of currency fluctuations that can adversely affect the value of these assets and liabilities. By doing so, companies can maintain a stable and more predictable financial position, especially when dealing with foreign currencies. Transfer accounting exposure to transaction exposure and creating cumulative translation adjustment are not objectives of balance sheet hedging.

A Balance Sheet Hedge Seeks to