Question
Greeley Co., a U.S.firm, has a payable in Polish zloty due in 90 days. The firm is worried that the zloty may appreciate against the
Greeley Co., a U.S.firm, has a payable in Polish zloty due in 90 days. The firm is worried that the zloty may appreciate against the U.S.dollar so that the payable in dollars would go up. The company would like to hedge this transaction exposure. Since forward contracts and other hedging techniques are not possible for the zloty, Greeley is considering cross-hedging. Which of the following major currencies is the most effective for cross-hedging purpose?
a. The euro, which has a correlation of 0.91 with the zloty.
b. The Swiss franc, which has a correlation of 0.76 with the zloty.
c. The Japanese yen, which has a correlation of 0.53 with the zloty.
d. The Australian dollar, which has a correlation of 0.26 with the zloty.
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