Hedging strategies help manage exchange rate risk from "summary" of International Money and Finance by Michael Melvin
Hedging strategies play a crucial role in managing exchange rate risk. Companies engaging in international business face uncertainty due to fluctuating exchange rates, which can impact their financial performance. By using hedging strategies, companies can protect themselves from potential losses resulting from adverse exchange rate movements. One common hedging strategy is the use of forward contracts, which allow companies to lock in a specific exchange rate for a future transaction. By entering into a forward contract, a company can eliminate the uncertainty associated with fluctuating exchange rates, thereby reducing its exposure to exchange rate risk. This can help companies maintain stable cash flows and improve their financial stability. Another hedging strategy involves the use of options contracts, which prov...
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