Cross-hedging involves hedging a position in one asset by taking a position in another asset.The effectiveness of cross-hedging depends upon how well the assets are correlated.An example would be a U.S. importer with liabilities in Swedish krona hedging with long or short forward contracts on the euro. If the krona is expensive when the euro is expensive, or even if the krona is cheap when the euro is expensive, it can be a good hedge. But they need to co-vary in a predictable way.