Financial Quotient

What is foreign exchange risk hedging?

U.S. dollars and other world currencies lie in a charity receptacle at Pearson international airport in Ontario, Canada on June 13, 2018.
U.S. dollars and other world currencies lie in a charity receptacle at Pearson international airport in Ontario, Canada on June 13, 2018.PHOTO: REUTERS

Foreign exchange (forex) risk hedging refers to what a company does to reduce its business exposure to forex rate fluctuations.

Hedging practices usually involve the usage of currency contracts such as futures, forward, options and swaps.

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A version of this article appeared in the print edition of The Sunday Times on November 03, 2019, with the headline 'What is foreign exchange risk hedging?'. Print Edition | Subscribe