n NISM Certifications
XV NISM Series XV
Medium

Which financial instrument is most suitable for hedging currency risk?

Practice question from NISM XV Mock Test 5 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. Forward contracts

    Correct answer

  2. B

    Equity shares

  3. C

    Government bonds

  4. D

    Mutual funds

Why this is the answer

Forward contracts allow investors or companies to lock in exchange rates for future transactions, effectively hedging currency risk. Equities, bonds, and mutual funds do not provide direct protection against currency fluctuations.

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