Currency Hedging Strategies

Currency hedging strategies are methods used by companies and investors to protect against losses caused by fluctuations in exchange rates. For example, if a U.S. company expects to pay for goods in euros in the future, it might use a financial contract to lock in the current exchange rate. This helps ensure they won’t pay more if the euro’s value increases. Common strategies include forward contracts (agreeing now on a future rate) and options (buying the right to exchange currency at a set rate). These tools minimize uncertainty, providing more stable costs and revenues despite currency movements.