Which one of the following is an internal hedging technique?

The correct answer is: Both A and B.

Leading and netting are both internal hedging techniques. Leading is a technique where a company sells its products in advance of production, which helps to lock in prices and protect against future price fluctuations. Netting is a technique where a company offsets its financial obligations against its financial receivables, which helps to reduce its overall risk exposure.

A swap is a financial instrument that allows two parties to exchange cash flows over a period of time. Swaps are often used to hedge against interest rate risk or currency risk.

Here is a more detailed explanation of each option:

• Leading is a technique where a company sells its products in advance of production. This helps to lock in prices and protect against future price fluctuations. For example, a company that produces wheat might sell its wheat to a buyer in advance of harvest. This would guarantee the company a certain price for its wheat, even if the price of wheat falls in the future.
• Netting is a technique where a company offsets its financial obligations against its financial receivables. This helps to reduce the company’s overall risk exposure. For example, a company might have a $10 million loan outstanding and $5 million in accounts receivable. By netting these two amounts, the company’s net exposure is only $5 million.
• Swap is a financial instrument that allows two parties to exchange cash flows over a period of time. Swaps are often used to hedge against interest rate risk or currency risk. For example, a company might enter into a swap agreement with a bank to exchange a fixed interest rate for a floating interest rate. This would protect the company from the risk of interest rates rising.