A U.S.-based MNC with exposure to the Swedish krona could best cross-hedge with
A)forward contracts on the euro.
B)forward contracts on the ruble.
C)forward contracts on the pound.
D)forward contracts on the yen.

Question

Quizplus · Accepted Answer

The Swedish krona has a strong positive correlation with the euro, so hedging with forward contracts on the euro would be the best choice. This correlation is driven by the close trade ties and economic similarities between Sweden and the eurozone countries. Hedging with forward contracts on currencies that have no correlation with the Swedish krona, such as the ruble, pound, or yen, would not effectively mitigate the currency risk exposure.

A US-Based MNC with Exposure to the Swedish Krona Could Best