Question

Elaborate Internal and External technique of Hedging.

Answer 1

Internal hedging techniques such as inter- company netting of foreign receipts and payments and domestic currency invoicing seem to be the most widely used hedging mechanism in mitigation transaction exposure whereas matching inflows and outflows with respect to timing of settlement is the most extensively med.

Forward contracts provide one of the most straightforward external hedging methods. A forward contract is a bespoke agreement between a business and a third party (typically a bank) by which the parties agree to exchange a certain amount of currency at an agreed rate on a specified date in the future.