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Which of the following statements is false? (i) The internal hedging technique is usually easy.and straightforward to be arranged - without the input of a third party or a financial institution (ii) External hedging is better than internal as it is more cost effective (iii) The internal hedging technique can be used to reduce foreign exchange risk (iv) Foreign exchange rate is not always predictable (ii) External hedging is better than internal as it is more cost effective (i) The internal hedging technique is usually easy and straightforward to be arranged - without the input of a third party or a financial institution (iii) The internal hedging technique can be used to reduce foreign exchange risk (iv) Foreign exchange rate is not always predictable

Question

Which of the following statements is false?
(i) The internal hedging technique is usually easy.and straightforward to be arranged - without the input
of a third party or a financial institution
(ii) External hedging is better than internal as it is more cost effective
(iii) The internal hedging technique can be used to reduce foreign exchange risk
(iv) Foreign exchange rate is not always predictable
(ii) External hedging is better than internal as it is more cost effective
(i) The internal hedging technique is usually easy and straightforward to be arranged - without the input of a third
party or a financial institution
(iii) The internal hedging technique can be used to reduce foreign exchange risk
(iv) Foreign exchange rate is not always predictable

Which of the following statements is false? (i) The internal hedging technique is usually easy.and straightforward to be arranged - without the input of a third party or a financial institution (ii) External hedging is better than internal as it is more cost effective (iii) The internal hedging technique can be used to reduce foreign exchange risk (iv) Foreign exchange rate is not always predictable (ii) External hedging is better than internal as it is more cost effective (i) The internal hedging technique is usually easy and straightforward to be arranged - without the input of a third party or a financial institution (iii) The internal hedging technique can be used to reduce foreign exchange risk (iv) Foreign exchange rate is not always predictable

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UnityMaster · Tutor for 5 years

Answer

(ii) External hedging is better than internal as it is more cost effective.

Explain

<br />(i): The internal hedging technique is usually easy and straightforward to be arranged - without the input of a third party or a financial institution. This statement is mostly true. Internal hedging strategies, such as netting or invoice currency selection, can be arranged without the involvement of third parties or financial institutions.<br /><br />(ii): External hedging is better than internal as it is more cost effective. This statement may not always be true. Whether internal or external hedging is more cost-effective can depend on a variety of factors including the nature and scale of the exposure, the size of the firm, and the particular circumstances, market conditions among other factors. Hence, a blanket statement saying that one is better than the other could be false in certain context.<br /><br />(iii): The internal hedging technique can be used to reduce foreign exchange risk. This statement is true. Internal hedging, such as netting exposures across different operations or between operations and corporate, can be used to reduce overall currency risk within an organization.<br /><br />(iv): Foreign exchange rate is not always predictable. This statement is true. There are a multitude of factor influencing the fluctuation of the foreign exchange rate making them extremely difficult to predict accurately. <br /><br />Given that context-specific statement (ii) could be false, rest of all the statements are true.
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