Cross-hedging may involve taking a forward position in a currency that is highly correlated with the currency an MNC needs to hedge.

Question

Quizplus · Accepted Answer

Cross-hedging involves hedging a particular currency risk by taking a position in a different but highly correlated asset or currency. Therefore, taking a forward position in a currency that is highly correlated with the currency an MNC needs to hedge is a correct statement.

Cross-Hedging May Involve Taking a Forward Position in a Currency