All of the following are hedges against exchange-rate risk EXCEPT a. foreign-currency swaps. b. use of...

All of the following are hedges against exchange-rate risk EXCEPT

a.

foreign-currency swaps.

b.

use of spot market.

c.

adjustment of funds commitments between countries.

d.

balancing monetary assets and liabilities.

Expert Solution

Answer to this question is b. use of spot market.

All of the following are hedges against exchange-rate risk except use of spot market.

Spot market is a public financial market in which shares, financial instruments or commodities are traded for immediate delivery on spot and that is why it is known as spot market.

Other all options are hedges against exchange-rate risk.

Foreign-currency swaps: It is an contract to exchange currency between two foreign parties. The contract consists of swapping of principal+interest payments on a loan made in one currency for principal+interest payments of a loan of equal value in any another currency.

Adjustment of funds commitments between countries: In this case there are two parties where one party commit to another party on any pre-decided date to transfer the funds. In this way they hedge their positions.

Balancing monetary assets and liabilities: All the monetary items including assets and liabilities (example: trade receivables and trade payable) in foreign currency uses the closing exchange rate at the reporting date and balancing is required for that.

jeff jeffy answered 6 months ago

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