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    Question

    A fund invests in US Treasuries but reports in INR.

    There’s a sudden INR depreciation by 8%. The FX impact is large in consolidated statements, though underlying USD holding unchanged. Which strategy helps mitigate translation exposure?
    A Leave unhedged Correct Answer Incorrect Answer
    B Forward contracts to sell USD Correct Answer Incorrect Answer
    C IRS (Interest Rate Swaps) Correct Answer Incorrect Answer
    D Currency options to sell USD Correct Answer Incorrect Answer
    E Both B & D Correct Answer Incorrect Answer

    Solution

    Translation exposure affects financial statements, not cash flows. Issuing forward or option contracts to sell USD exposure protects INR value on reporting without affecting core holdings.

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