Question

If you have a long position in a foreign currency, you can hedge with:______.
a) a short position in a currency forward contract.
b) borrowing in the domestic and foreign money markets.
c) a short position in an exchange-traded futures option.
d) a short position in foreign currency warrants.

Answer 1

Answer:

a) a short position in a currency forward contract

Explanation:

If you have long exposure, then you hedge it with short exposure in forward market. In future options, you need to pay a premium, but in the forward market, you don't need to pay any premium and it can be customized.