When a firm's currency position produces losses,if its hedge position is effective:
A)its derivatives will produce offsetting gains.
B)its derivative position will not be affected.
C)it can use those losses to offset taxable income from operations.
D)its on-balance sheet commitments will be reduced.

Question

Quizplus · Accepted Answer

If a firm's currency position produces losses, an effective hedge position through derivatives can produce offsetting gains. This means that the losses from the currency position can be mitigated by the gains from the derivatives, reducing the overall losses for the firm.

When a Firm's Currency Position Produces Losses,if Its Hedge Position