Question

Explain the various methods of currency hedging that businesses can use to protect themselves against exchange rate fluctuations. Is there one method that is better than all others from a business perspective? Explain your answer.

Answer 1

There are various methods of currency hedging that a can business can use to protect themselves against exchange rate fluctuations. they are as follows-

A. The risk associated with exchange rate fluctuation can be hedged through taking Exposure into forward markets as well as future markets so that it will help to hedge the future rate fluctuations.

B. A company can also take exposure into currency swaps in order to swap its risk and negate that is completely for exchange rate fluctuation

C.a company can also be entering into risk sharing agreements in order to completely share the risk with both the parties in order to minimise the risk associated with exchange rate moment

D. Company can also face through various exchange rate risk by lagging and ledging method because it will help the company in order to minimise the impact of exchange rate fluctuations by lagging the payments.