The basic hedging strategy involves
A) reducing hard currency assets and soft currency liabilities
B) increasing hard currency liabilities and soft currency assets
C) reducing soft currency assets and hard currency liabilities
D) converting soft currencies to hard currencies and lending hard currencies

Question

Quizplus · Accepted Answer

The basic hedging strategy involves reducing soft currency assets and hard currency liabilities. This can be done in several ways, such as selling off soft currency assets and replacing them with hard currency assets, or taking out loans in hard currency to pay off soft currency liabilities. The goal is to minimize the risk of losses due to fluctuations in exchange rates. A and B are incorrect as they involve increasing either soft currency liabilities or soft currency assets, which would increase the level of risk. D is incorrect as it involves converting soft currencies to hard currencies and lending hard currencies, which does not necessarily reduce the risk of losses due to fluctuations in exchange rates.

The Basic Hedging Strategy Involves