Cross-hedging may involve taking a forward position in a currency that is highly correlated with the currency an MNC needs to hedge.

Question

Quizplus · Accepted Answer

Cross-hedging involves taking a position in a different but highly correlated asset to hedge against the risk in the original asset. In the context of currency hedging, this could involve hedging the risk in one currency by taking a forward position in another currency that is highly correlated with it.

Cross-Hedging May Involve Taking a Forward Position in a Currency