The fundamental method of managing exchange rate risk-hedging/hedging: refers to the risks faced by a group of assets, and uses specific financial instruments in the international financial market to construct opposite positions to eliminate the unsystematic risks of assets such as interest rate risk and exchange rate risk. Here is mainly to avoid the adverse effects of exchange rate changes on short-term cash flow. Including long hedging and short hedging, the former refers to the expectation that foreign exchange prices will rise soon, while selling spot foreign exchange and using financial instruments, such as futures, to buy forward foreign exchange in the futures market; The latter refers to the expectation that foreign exchange prices will soon fall, while buying spot foreign exchange and using financial instruments, such as futures, to sell forward foreign exchange in the futures market;
The specific financial instruments are as follows: (1) forward foreign exchange contract transactions. Forward foreign exchange contract is an agreement between banks and customers to convert one currency into another in the future, which stipulates the exchange rate, delivery date and contract amount. It is the most commonly used hedging tool when the exchange rate fluctuates. (2) forex futures trading. In forex futures trading, a futures contract for the delivery of a certain amount of foreign exchange at a given exchange rate on a certain date in the future is determined by both parties through public bidding on the exchange, so that the asset value is not or less affected by market fluctuations. (3) Foreign exchange option trading refers to the forward foreign exchange trading contract signed by the buyer and the seller. After paying a certain insurance premium to the seller, the buyer has the right to abandon the contract or ask the seller to execute the signed contract at the agreed amount on or before the expiration date. Including call right (the buyer has the right to buy foreign exchange) and put right (the buyer has the right to sell foreign exchange).
Other measures to reduce foreign exchange risk (1) Experts suggest (2) centralize foreign exchange management within multinational companies (3) determine the risk level that enterprises can bear (4) create a system to measure foreign exchange trends and exchange rate risks (5) monitor changes in major currencies (6) beware of currencies that are unstable or subject to foreign exchange control (7) grasp economic trends and planning trends (8) distinguish economic risks from trading risks.