CFM62050 - Foreign exchange: matching: hedging involving different currencies

Hedging involving different currencies

The underlying assets of Comtrek HK Ltd are denominated in US dollars. Comtrek plc decides that it can reduce the exchange risk from its HK$1 million shareholding in the subsidiary by borrowing in US dollars. It is also possible that Comtrek HK Ltd will hedge its Hong Kong assets with a US dollar loan. Whilst the HK dollar remains pegged to the US dollar this provides an effective hedge and would be acceptable for accounting and tax purposes.