Explain two ways in which a firm can hedge against a currency transaction exposure

Advanced Financial Management Block Revision Mock Exams

Hedging a transaction exposure

i) Invoicing in home currency. A company exporting goods or services may invoice in its local currency so that payments made the buyer are fixed and not affected exchange rate fluctuations.
ii) Leading and lagging
Leading refers to an immediate payment or the granting of very short term credit. Lagging refers to the granting of long term credit.
iii) Multi lateral netting and matching
iv) Forward contracts
v) Money market hedges
vi) Currency futures
vii) Currency options

viii) Currency swaps

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