Hedging transaction exposure and money market instruments
Compare and discuss the hedging transaction exposure by using the forward contract vs. money market instruments. When the optional hedging approaches do creates the same result?
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Hedging transaction exposure by the forward contract is attained by selling or buying the foreign currency receivables or payables forward. Otherwise, money market hedge is achieved by borrowing or lending the present value of the foreign currency receivables or payables, thus creating offsetting the foreign currency positions. In case interest rate parity is holding, two hedging methods are same.
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