Effective Hedging Strategy for Currency Exposure

Easy Derivative Strategies Hedging Strategies

Mark is a portfolio manager for an investment firm that has a substantial exposure to a foreign currency. Due to recent volatility in the currency markets, he is concerned about potential losses as values fluctuate. To mitigate this risk, Mark is considering different hedging strategies using currency derivatives.

Which of the following strategies would be the most effective for Mark to protect his portfolio from adverse currency movements?

Use a currency forward contract to lock in exchange rates.

Invest in foreign equities to diversify the currency exposure.

Engage in speculating on the foreign currency's appreciation.

Hint

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% Correct74%