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Hedging foreign currency asset or liability

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Reference no: EM133147666

Exchange Rate Fluctuations Discussion Forum

Read Chapters 6 and 7 of the text.

A company makes an export sale denominated in a foreign currency and allows the customer one month to pay. Under the two-transaction perspective, accrual approach, how does the company account for fluctuations in the exchange rate for the foreign currency? Why might a company prefer a foreign currency option rather than a forward contract in hedging a foreign currency firm commitment? Why might a company prefer a forward contract over an option in hedging a foreign currency asset or liability?

Reference no: EM133147666

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