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14 January, 01:38

If you own a foreign currency denominated bond, you can hedge with A. buying the foreign currency today and investing it in the foreign county. B. a long position in an exchange-traded futures option. C. a long position in a currency forward contract. D. a swap contract where pay the cash flows of the bond in exchange for dollars

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  1. 14 January, 02:34
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    D) a swap contract where pay the cash flows of the bond in exchange for dollars.

    Explanation:

    When an investor engages in foreign exchange hedge they are trying to reduce foreign exchange risk (risk associated with changes in foreign exchange rates). A foreign exchange swap contract is made between parties that agree to exchange a loan/bond issued in a foreign currency with a domestic (in US dollars) loan/bond of an equal value.

    In other words, the company would need to exchange its foreign bond for a similar value domestic bond.
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