Podcast
Questions and Answers
What is the main objective of a balance sheet hedge?
What is the main objective of a balance sheet hedge?
- To minimize translation exposure (correct)
- To decrease net exposed assets
- To maximize translation exposure
- To increase net exposed assets
When could a balance sheet hedge be justified?
When could a balance sheet hedge be justified?
- When expecting foreign currency appreciation
- Under conditions of hyperinflation (correct)
- When seeking to maximize translation exposure
- During times of low inflation
What could be a reason for a firm to engage in a balance sheet hedge?
What could be a reason for a firm to engage in a balance sheet hedge?
- To increase translation exposure
- To avoid breaching debt/equity ratio limits (correct)
- To benefit from a net loss
- To take advantage of foreign currency depreciation
How can a firm minimize translation exposure if it expects a foreign currency to appreciate?
How can a firm minimize translation exposure if it expects a foreign currency to appreciate?
When would decreasing net exposed assets be beneficial for a firm with respect to foreign exchange gains?
When would decreasing net exposed assets be beneficial for a firm with respect to foreign exchange gains?
Under what circumstances might a firm decide to increase its net exposed assets?
Under what circumstances might a firm decide to increase its net exposed assets?
Which action by management could help in maintaining debt/equity ratios within specified limits?
Which action by management could help in maintaining debt/equity ratios within specified limits?
What is the primary goal of equalizing assets and liabilities in a balance sheet hedge?
What is the primary goal of equalizing assets and liabilities in a balance sheet hedge?
Why would a firm adopt a balance sheet hedge strategy during times of high inflation?
Why would a firm adopt a balance sheet hedge strategy during times of high inflation?
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