Hedging Exchange Rate Exposure Involves Establishing an Offsetting Currency Position

question 14

True/False

Hedging exchange rate exposure involves establishing an offsetting currency position such that the loss or gain of one currency position is offset by a corresponding gain or loss in some other currency.

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Definitions:

Budget Surplus

A situation where income or revenues exceed expenditures over a specific period of time, typically a fiscal year.

Budget Deficit

A budget deficit happens when a government's expenditures surpass its revenues within a given fiscal period.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded by consumers at those prices.

Net Capital Outflow

Refers to the difference between the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreigners. A positive net capital outflow means a country is investing more abroad than others are investing in it.