Which of the Following Is NOT an Acceptable Hedging Technique

question 6

Multiple Choice

Which of the following is NOT an acceptable hedging technique to reduce risk caused by a relatively predictable long-term foreign currency inflow of Japanese yen?

• A) Import raw materials from Japan denominated in yen to substitute for domestic suppliers.
• B) Pay suppliers from other countries in yen.
• C) Import raw materials from Japan denominated in dollars.
• D) Acquire debt denominated in yen.

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Definitions:

Source of Cash

Any activity or operation that brings money into a business, contributing to its cash flow.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated by dividing current assets by current liabilities.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating short-term financial health.

Short-term Bank Loan

A loan borrowed from a bank with a repayment period typically less than one year, often used for immediate liquidity needs.