Which one of the following management techniques is likely to best offset the risk of long-run exposure to receivables denominated in a particular foreign currency?
A) Borrow money in the foreign currency in question.
B) Lend money in the foreign currency in question.
C) Increase sales to that country.
D) Increase sales in this country.

Question

Quizplus · Accepted Answer

Borrowing money in the foreign currency in question would create a natural hedge, as the company would have matching assets and liabilities in the same currency, offsetting the risk of a long-run exposure to receivables denominated in that currency. Lending money in the foreign currency in question may increase the exposure, increasing the risk. Increasing sales to or in that country may help generate more receivables in that currency, creating more exposure.

Which One of the Following Management Techniques Is Likely to Best