foreign exchange hedging

Foreign exchange hedging is a strategy used by businesses and investors to protect against fluctuations in currency values. For example, if a company expects to receive money in another currency in the future, they might use hedging to lock in the current exchange rate. This way, even if the currency's value changes, their costs or revenues remain predictable and stable, reducing financial risk. Think of it as insurance for currency movements—helping organizations avoid unexpected losses due to unpredictable shifts in exchange rates.