Balance Sheet Hedge Requires an Equal Amount of Exposed Foreign

question 3

Multiple Choice

Balance sheet hedge requires an equal amount of exposed foreign currency assets and liabilities. A German company's subsidiary in Poland has Zloty as its functional currency. To hedge its translational exposure the company should

• A) issue 10 year Eurobond guaranteed by the parent matching the amount of subsidiary's assets.
• B) obtain 5 year zloty loan in Poland.
• C) start rolling over 1 year forward contracts.
• D) start rolling over 3 month zloty loans, repatriate and convert the proceeds in euro.

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