Suppose you are the French representative of a company selling soap in Canada. Describe your foreign exchange risk and how you might hedge it with a money market hedge
What will be an ideal response?
As a French company, you are interested in euro profits. Selling soap in Canada will give you Canadian dollar revenues. The euro value of these Canadian dollar revenues will fall in value if the Canadian dollar weakens relative to the euro. To offset this loss in value, your company should borrow in Canadian dollars.
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