Question

If the value of the local currency is expected to increase, which of the following is...

If the value of the local currency is expected to increase, which of the following is the correct way to hedge translation exposure?

Group of answer choices

Increase accounts receivable

Increase local currency borrowing

Reduce the level of cash in local currency

Delay accounts payable

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Answer #1

when the value of local currency is expected to increase, a company should delay the accounts payable because when there would be payment after the appreciation of the domestic currency the company would have to make lesser of the payment so delaying the accounts payable would be a good strategy because when the local currency is appreciating and and the payment for the creditors is delayed, they would be in advantages positions because of appreciation of domestic currency as the company will have to pay less.

Rest of the options are not true because sitting on cash or taking borrowings or increasing receivables will also not help in such appreciation of local currencies.

So, correct answer would be option ( d).

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