Question : Which of the following is an example of an exchange rate risk mitigation strategy?
Option 1: Currency hedging
Option 2: Currency pegging
Option 3: Currency speculation
Option 4: Currency manipulation
Correct Answer:
Currency hedging
Solution : The correct answer is a) Currency hedging
Currency hedging is an example of an exchange rate risk mitigation strategy. It involves taking actions to minimize or offset the potential negative impact of exchange rate fluctuations on financial transactions or investments. Currency hedging strategies can include the use of financial instruments such as forward contracts, futures contracts, options, or currency swaps. These instruments allow individuals or businesses to lock in a specific exchange rate for future transactions, reducing the uncertainty and risk associated with currency fluctuations.
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