The most direct and popular way of hedging transaction exposure is by
A)exchange-traded futures options.
B)currency forward contracts.
C)foreign currency warrants.
D)borrowing and lending in the domestic and foreign money markets.

Question

Quizplus · Accepted Answer

Currency forward contracts are the most direct and popular way of hedging transaction exposure. This is because they allow companies to fix the exchange rate at which a future transaction will occur, thereby eliminating the uncertainty of future exchange rate movements. Exchange-traded futures options and foreign currency warrants are also commonly used for hedging, but are not as direct as forward contracts. Borrowing and lending in the domestic and foreign money markets may partially hedge transaction exposure, but it does not eliminate the risk entirely.

The Most Direct and Popular Way of Hedging Transaction Exposure