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Part 3: Discussion (10 marks) Critically discuss the advantages and disadvantages of hedging currency risk using: a) Futures b) Forwards c) Options [10 marks for
Part 3: Discussion (10 marks) Critically discuss the advantages and disadvantages of hedging currency risk using: a) Futures b) Forwards c) Options [10 marks for Part 3] Part 4: Why hedge? (20 marks) Contractual hedging means hedging using contractual instruments, such as futures, forwards, options and swaps. It might seem obvious that a company should use these instruments to hedge all, or at least most of their foreign currency exposures. However, it is an open question whether or not, and to what extent companies should hedge their currency risks using contractual hedging. Required Critically discuss the advantages and disadvantages for a multinational corporation of using contractual hedging to manage its currency exposure. [Note: You can add value to your answer in this question by supporting your discussion with citations to academic and professional articles, and citing real world examples to illustrate your points). [20 marks for Part 4] [Total of 60 marks for Question 1]
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