Risk is an inevitable part of financial management especially when exchanging money with international economies. In order to reduce risk, financial managers use hedging strategies to offset exposure to price risk. Think about the various hedging strategies that are employed in the foreign exchange markets including the forward market hedge, the money market hedge, and the options market hedge.

With these thoughts in mind, address the following:

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  • Summarize how businesses and investors can use hedging to manage exposure.
  • Is it cost effective for most multinational corporations to hedge their foreign currency risk? Why or why not?


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