ACCA Financial Management (F9) Certification Practice Exam

Which strategy involves matching the time of cash inflows and outflows in foreign currency risk management?

1. Lead payments

2. Netting

3. Lagged payments

4. Currency invoicing

The correct answer is: Netting

The strategy that involves matching the timing of cash inflows and outflows to manage foreign currency risk is known as netting. This approach is commonly utilized by companies that operate in multiple countries with various currencies. Through netting, a company consolidates its receivables and payables in different currencies, allowing them to offset cash inflows and outflows. This matching of cash flows minimizes exposure to currency fluctuations, as it reduces the amount of currency that needs to be converted and mitigates the potential for losses arising from unfavorable currency exchange rate movements. In the context of foreign currency management, netting can lead to cost savings by reducing transaction fees and providing better control over cash flows. It is particularly beneficial for multinational corporations that have a significant volume of transactions across different jurisdictions. The other options represent different strategies that do not specifically focus on matching the timing of cash flows. For example, lead payments involve making payments in advance to take advantage of favorable exchange rates, while lagged payments delay payments to benefit from expected currency appreciation. Currency invoicing refers to the practice of billing in local currency to avoid exchange rate risks, rather than focusing on the timing of inflows and outflows.