Exchange rate risk management is the process of protecting a business’s balance sheet from fluctuations in foreign exchange rates. This involves assessing and addressing risks associated with buying and selling goods or services in a foreign market, investing abroad, borrowing funds denominated in a foreign currency, and holding foreign currencies as cash reserves. By implementing effective techniques such as hedging, forward contracts, and currency swaps, companies can protect their profits from unexpected changes in exchange rates. For international businesses, exchange rate risk management should be an ongoing part of their financial planning strategy.