Which of the following is NOT an acceptable hedging technique to reduce risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen?
A) Import raw materials from Japan denominated in yen to substitute for domestic suppliers.
B) Pay suppliers from other countries in yen.
C) Import raw materials from Japan denominated in dollars.
D) Acquire debt denominated in yen.

Question

Quizplus · Accepted Answer

Importing raw materials from Japan denominated in dollars does not hedge against the risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen. In fact, it will increase the risk as it introduces another currency into the equation. The other options all provide a way to hedge against the risk by either reducing the need to purchase yen or by acquiring an offsetting form of yen-based liability.

Which of the Following Is NOT an Acceptable Hedging Technique