Hedging Currency Risk for Multinational Corporation

Hard Multinational Operations Hedging Currency Risk

A multinational corporation (MNC) based in the United States has significant operations in Europe and Asia. Due to fluctuations in currency exchange rates, the MNC is exposed to potential losses in the value of its revenues generated in Euros (EUR) and Japanese Yen (JPY). To mitigate this currency risk, the company is considering several hedging strategies.

Which of the following hedging techniques would most effectively stabilize the cash flows derived from these foreign operations in the context of this MNC?

Engage in a currency swap with a local bank to exchange euros and yen for US dollars.

Sell call options on euros and yen while simultaneously purchasing put options to limit downside risk.

Raise a Euro-denominated loan to offset the revenue earned in euros.

Hint

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