Question

An MNC that uses a strategy of dynamic hedging will apply a hedge it expects a foreign currency that it holds to appreciate, and it will remove the hedge when it expects the currency to depreciate.​

a. ​True

b. ​False

Answer 1

Hello,
Correct Answer is option A
True.
When an MNC expect that foreign currency will appreciate, therefore local currency should be depreciate,(it is assumed that we have to make payment in foreign currency that why we are afraid of foreign currency appreciate) in order to recover from the looses the company should hedge the position. If the foreign currency depreciate we are not afraid of looses at that time there is no use of hedging a position. It will save the cost while applying for a hedging.
There should be a benefit to the company from foreign currency appreciate if the company exports goods and services to the foreign and receive amount in foreign currency.

I hope this clear your doubt.

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