A system of transactions involving borrowing in one currency and lending in another in order to construct a pair of future transactions in the two currencies similar to a forward exchange is a/an:
A) balance sheet hedge.
B) internal hedge.
C) money market hedge.
D) All of the given choices.

Question

Quizplus · Accepted Answer

The system of transactions described is a money market hedge, which involves borrowing in one currency and lending in another to create a synthetic forward exchange. Balance sheet hedges involve changes in assets and liabilities to protect against currency risk, while internal hedges involve a company's departments hedging against each other. Both of these types of hedges are different from the money market hedge described in the question. Therefore, D is not the correct answer.

A System of Transactions Involving Borrowing in One Currency and Lending