Which of the following about transaction exposure is NOT correct?
A) An Australian company that exports to Japan faces transaction exposure for its accounts receivable.
B) If an Australian company exports to the USA but imports other USA goods for the same value, then it has a natural hedge if the two payment dates are the same.
C) If an Australian company has exposures in two currencies with correlation coefficient of 0.96 then the company has a natural hedge.
D) A firm needs to calculate the net amount of cash inflows and outflows denominated in different currencies, based on the timing of cashflows.

Question

Quizplus · Accepted Answer

A correlation coefficient of 0.96 indicates a very high positive correlation between the two currencies and therefore the company does not have a natural hedge.

Which of the Following About Transaction Exposure Is NOT Correct