Question

____ is (are) not a limitation of hedging translation exposure. a. Inaccurate stock price forecasts b. Inadequate forward contracts for some currencies c. Taxation on gains from forward contracts d. Increased transaction exposure

Answer 1

Inaccurate stock price forecasts ( A )

Step-by-step explanation:

Hedging is an investment position that is used to protect a company against potential losses/ adverse price movement in the financial market, Hedging is a trading strategy employed by large firms. and the stock price forecasts is not a limitation to this strategy because the strategy is used to offset losses regardless of the direction of the price movement.

The translation exposure is the exposure a company exposes its income to while trading in the financial/stock market because its income/equity will change with change in the exchange rates in the market. taxation, increased transaction exposure and inadequate forward contracts for some currencies are a limitations of hedging translation exposure.

Answer 2

a. Inaccurate stock price forecasts

Step-by-step explanation:

Hedging in finance refers to a strategic investment technique that is employed to reduce or offset potential loss that may result from any adverse changes in price.

Translation exposure or translation risk can be described as the risk that the values of components of the financial statement such income, liabilities, assets or equities of a company that are denominated in foreign currency will change.

Hedging can be employed by a company that engages in foreign operations in order to protect against translation exposure through the the use of currency swaps, purchase of foreign currency, use of currency futures, or a combination of these methods.

Since the aim of hedging is to reduce potential loss, inaccurate stock price forecasts is not a limitation of hedging translation exposure.