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. Explain how matching currency cash flows can offset operating exposure.

. Explain how matching currency cash flows can offset operating exposure.

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Answer #1

Matching currency cash flows can be defined as matching the cash outflows and inflows of the same currency, including borrowings. Usually the tool that is used for matching the currency cash flow is currency swap.

Matching currency cash flows can offset an operating exposure in case the entity is aiming to acquire debt denominated in that particular currency. As, usually the long-position of the comapny can be predicted with certainity the same can also be hedged by entering into forward contracts or other contractual hedges to reduce or limit the risk.

In this manner matching the currency cash flows can offset the operating exposure.

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