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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Currency hedging
how currency hedging can reduce a firm’s cost of capital??
If they have long term borrowing in a foreign currency then it will form part of their cost of capital.
The interest payable will fluctuate depending on the exchange rate (and therefore effect the cost of capital) – hedging against that fluctuation would remove or reduce that risk.
