The ability to take advantage of the portfolio effect through exposure netting to manage foreign risk assumes the firm will use
A)centralization of its hedging activities
B)segmentation of its hedging activities to the firm's foreign subsidiaries
C)decentralization of its hedging activities
D)foreign banks and the purchase of forward contracts.

Question

Quizplus · Accepted Answer

Centralization of hedging activities allows a firm to net exposures across the entire company, taking advantage of the portfolio effect to manage foreign risk more efficiently. This approach contrasts with segmentation or decentralization, where hedging is managed independently by different parts or subsidiaries of the firm, not allowing for the full benefits of netting exposures.

The Ability to Take Advantage of the Portfolio Effect Through