Understanding and applying currency hedging forward contracts

Currency hedging forward contracts are really very simple. They allow either individuals or businesses with exposure to currency risk to protect themselves from adverse moves in the foreign exchange market.

The main thing to consider when looking at hedging currency exposure with forward contracts is your appetite for risk.

If you are very risk averse and like to budget precisely then a forward contract is probably the most effective way to hedge. However, if you are not averse to taking some risk on your currency exposure there are other currency hedging tools that can be used.

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