• Company MAUMBA, an international exporter, faces currency exchange rate risk due to

  fluctuations in the foreign exchange market. They have a significant portion of their revenue

  denominated in a foreign currency, and exchange rate movements can impact their

  profitability. To mitigate this risk, they consider using financial instruments for hedging.

• REQUIRED:

  $($a$)$ Identify two types of financial instruments that Company MAUMBA can use to hedge

  against currency exchange rate risk. Provide a brief explanation of each.

  $($b$)$ Discuss the advantages and disadvantages of using forward contracts versus

  currency options for hedging currency exchange rate risk$\mathrm{.}3$

  $($c$)$ Assuming Company XYZ decides to use forward contracts, explain how they can

  determine the appropriate hedging amount and the optimal time to enter into the

  contracts

Answer rating: 100% (QA)

Hedging Currency Risk for Company MAUMBA a Financial Instruments for Hedging Forward Contracts These are agreements to buy or sell a specific amount o... View the full answer