What is Natural Hedge?

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Accepted Answer

A **natural hedge** is a risk management technique that reduces financial exposure, particularly to foreign exchange (FX) rate fluctuations, by structuring a company's operations and balance sheet to create offsetting liabilities and assets in the same foreign currency, thereby avoiding the need for costly external financial instruments.

Natural Hedge

What is Natural Hedge?

What is a natural hedge and how does it fundamentally differ from a financial hedge?

How can multinational corporations effectively implement a natural hedge to mitigate foreign exchange risk?

Why is a natural hedge often considered the most cost-effective and operationally sound strategy for long-term currency risk management?

When is a natural hedge insufficient, and what are the key limitations and risks associated with relying solely on this strategy?

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