A ________ 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

This scenario describes a money-market hedge, which involves borrowing in one currency (to receive a known future cash flow) and simultaneously investing in another currency (to offset the risk of currency fluctuations). A forward contract would be an agreement to buy or sell a currency at a future date, but does not involve borrowing or lending activities. A currency collar involves purchasing both a put option (to protect against currency depreciation) and a call option (to offset the cost of the put option), and does not involve borrowing or lending. A currency option involves the right, but not the obligation, to buy or sell a currency at a future date, and does not involve borrowing or lending activities.

A ________ Involves Simultaneously Borrowing and Lending Activities in Two