Fransen Co. does a lot of businesses in Denmark. It has numerous trade accounts receivables and accounts payables that are to be settled in Danish krones. What type of hedge does Fransen have?
A)Fair-value hedge
B)Cash-flow hedge
C)Natural hedge
D)Hedge instrument

Question

Quizplus · Accepted Answer

Fransen Co. has a natural hedge as its trade receivables and payables are in the same currency, Danish krones. This means that any fluctuation in the exchange rate between Danish krones and other currencies will impact both the receivables and payables to a similar extent, creating a natural hedge. Therefore, Fransen does not need to implement any additional hedge instruments.