Money market hedge
You'll learn how a money market hedge works to lock in exchange rates and eliminate currency risk. This technique involves borrowing or depositing currencies in the money markets to fix the amount you'll receive or pay in a foreign currency at a future date.
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In this lesson
- 0:00 Money market hedge overview
- 0:24 Why businesses use hedging
- 1:05 Money market hedge worked example
- 2:53 Hedging payments versus receipts
About this lesson
We'll walk through a practical example showing how a US company can hedge a future receipt of Japanese yen by borrowing yen today, converting to dollars at the spot rate, and depositing those dollars to mature when the foreign currency is received. Understanding money market hedges is essential for FM and AFM papers, where you'll need to compare hedging methods and calculate the certain cash flows businesses can expect from international transactions.
Duration: 3m
Transcript
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