A firm exposed to exchange rate risk can hedge its risk by

Question

Quizplus · Accepted Answer

All of the options listed can be used to hedge exchange rate risk. 
- Using the forward exchange market allows the firm to lock in a specific exchange rate for a future transaction, reducing uncertainty. 
- Borrowing in international money markets may allow the firm to obtain funding in the same currency as its expected future cash flows, reducing the impact of exchange rate fluctuations. 
- Utilizing foreign currency futures markets allows the firm to enter into a contract to buy or sell a specific currency at a predetermined price and date, providing certainty around future exchange rates.

A Firm Exposed to Exchange Rate Risk Can Hedge Its