If the foreign currency is expected to appreciate and there are no hedging instruments available, youmight still hedge the payables position by:
A) buying forward a currency which has a strong positive correlation with the foreign currency in question
B) buying forward a currency which has a strong negative correlation with the foreign currency in question
C) selling forward a currency which has a strong positive correlation with the foreign currency in question
D) selling forward a currency which has a strong negative correlation with the foreign currency in question

Question

Quizplus · Accepted Answer

Buying forward a currency that has a strong positive correlation with the foreign currency in question can act as a hedge because if the foreign currency appreciates, the positively correlated currency is likely to appreciate as well, offsetting potential losses.

If the Foreign Currency Is Expected to Appreciate and There