Currency Risk Management

Currency risk management involves strategies to reduce the potential negative impact of fluctuations in exchange rates on financial transactions. Businesses that operate internationally may face losses if the value of a foreign currency decreases against their home currency. To manage this risk, companies can use tools like forward contracts, which lock in exchange rates, or options that give them the right to exchange currencies at a set rate. By using these methods, businesses can protect their profits and budgets from unexpected changes in currency values, ultimately stabilizing their financial planning and operations.