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Julia wishes to hedge against risk of exchange rate movement on her future $ reciept.
Which of the following would not be relevant?a)Swaps
b)Currency fututres contracts
c)Forward exchange contract
d)Money market hedgingCorrect answer is swaps.But the reason they have mentioned is that it is used for interest rate risk. I have a problem with the reason because Swaps (i.e currency swaps) are also used to hedge currency exchange rate risk na?
Currency swaps are primarily used to get lower interest rates rather than to hedge against exchange rate risk. This question specifically refers to managing exchange risk on a future $ receipt – currency swaps are used when borrowing money, not for one-off receipts in foreign currency.
See page 116 of our free lecture notes.
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