Question

Hedging instruments (i.e. futures contracts, forward contracts, and currency swaps) are used by MNCs to: a....

Hedging instruments (i.e. futures contracts, forward contracts, and currency swaps) are used by MNCs to:

a. speculate on fluctuating currency exchange rates

b. speculate with risk management

c. insulate the firm from some risk

d. swap currency risk for interest rate risk

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Answer #1

Hedging instruments like future contracts and forward contracts along with option contract and swap contracts are used by various multinational corporations who have exposures in different markets to hedge their risk against currency fluctuations. These instruments helps to minimise the effect of adverse movement into different currencies.

it is not undertaken to speculate or swap currency risk for interest rate risk or speculative risk management.

Correct answer would be option (C) insulate the firm from some risk.

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