________ involves simultaneously borrowing and lending activities in two different currencies to lock in the currency's value of a future foreign currency cash flow.
A) forward contract
B) currency collar
C) money-market hedge
D) currency option

Question

Quizplus · Accepted Answer

The described activity is known as a money-market hedge, which involves borrowing the foreign currency needed to finance the cash flow in that currency and lending the domestic currency obtained from exchanging the foreign currency. This strategy aims to eliminate exchange rate risk by creating a natural hedge through offsetting cash flows in opposite currencies. Forward contracts, currency collars, and currency options are other methods of managing exchange rate risk, but they do not involve simultaneous borrowing and lending activities in different currencies.

________ Involves Simultaneously Borrowing and Lending Activities in Two Different