One possible reason for a balance sheet hedge could be because the foreign subsidiary is about to be liquidated, so that value of its Cumulative Translation Adjustment (CTA) would be realized.

Question

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A balance sheet hedge may be used to manage the risk associated with the translation of the foreign subsidiary's financial statements back into the parent company's reporting currency. In the scenario described, if the subsidiary is about to be liquidated, the CTA account (which reflects the cumulative effect of translation adjustments on the subsidiary's balance sheet) would become realized and could impact the parent company's financial statements. By using a balance sheet hedge, the parent company could mitigate this risk and potentially achieve a more predictable financial outcome.

One Possible Reason for a Balance Sheet Hedge Could Be