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ACCA Strategic Professional · Advanced Financial Management · Management of international trade and finance

Which statement about internal hedging techniques is correct?

Matching currency receipts against payments in the same currency is correct, because it cuts net exposure without derivatives or bank products. Netting covers only intra-group balances, and home-currency invoicing transfers risk to the counterparty rather than removing it.

  1. AMatching foreign currency receipts with payments in the same currency reduces net exposure without using external derivativesCorrect
  2. BLeading and lagging are only available to a company with no subsidiaries
  3. CNetting eliminates all transaction exposure with external customers
  4. DInvoicing in the home currency removes exposure for the group as a whole

Explanation

Matching offsets currency inflows against outflows, reducing the net exposure with no external instrument. Leading and lagging mainly apply to intra-group or flexible terms. Netting concerns intra-group balances, not external customers. Home-currency invoicing simply passes the risk to the counterparty.

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