Question

Now that Hurd has more specifically located the source of the economic exposure, Unit A, it is considering ways to hedge this exposure. Since Unit A finances some of its operations, one idea being considered by Hurd management is a change the financial structure of Unit A to a mix of financing in dollars and financing in pounds. Note: Assume the interest rate on pounds is approximately equal to the interest rate on dollars. If the pound appreciates, Unit A

Answer 1

Hedging is a financial strategy used to protect against currency risk. Unit A is considering changing its financial structure to a mix of financing in dollars and pounds to hedge against the exposure to pound's appreciation.

Step-by-step explanation:

Hedging is a financial strategy used to protect against currency risk. In this case, Unit A is considering changing its financial structure to include a mix of financing in dollars and financing in pounds to hedge against the exposure to the pound's appreciation. By having a mix of financing in different currencies, Unit A can offset any potential losses caused by the pound appreciating, ensuring stability in its operations.