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Sir what does this line mean by natural hedges?
“Maintaining a foreign currency account may enable a company to offset any natural hedges and only convert currency periodically to minimise transaction costs.”
Natural hedges are ones not using financial instruments, the most obvious one being matching – i.e. if there is regular income in a foreign currency (and so is subject to exchange rate fluctuations) then create an expense in the same foreign currency so that to the extent the amounts are the same then the exchange rte fluctuations ‘cancel out’.
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