Question

Companies can use derivatives to reduce foreign exchange risk, and usually as a way to lessen _____.

a. The value of currency
b. Interest rate swings
c. Inflationary swings
d. All of the above

Answer 1

Companies can use derivatives to reduce foreign exchange risk by signing financial contracts to hedge against currency risk and lessen the value of currency, interest rate swings, and inflationary swings.

Step-by-step explanation:

Companies can use derivatives to reduce foreign exchange risk by using financial transactions to protect themselves against currency risk. This can be done by signing a financial contract to hedge the risk from currency fluctuations. Derivatives can be used to lessen the value of currency, interest rate swings, and inflationary swings, making option d. All of the above, the correct answer.