The hedging of a foreign currency for which no forward contract is available with a highly correlated currency for which a forward contract is available is referred to as cross-hedging.

Question

Quizplus · Accepted Answer

This statement is true. Cross-hedging is a common practice in the foreign exchange market when a forward contract is not available for the currency being hedged. In this case, a highly correlated currency is used as a substitute for hedging.

The Hedging of a Foreign Currency for Which No Forward