Currency Hedging Definition

A currency hedge is a strategy used by investors to protect themselves from losses that may be incurred as a result of fluctuations in the value of foreign currencies. By hedging their exposure to foreign currencies, investors can minimize the risk of losses due to changes in exchange rates.

There are several different types of currency hedges that investors can use, including forward contracts, options, and futures contracts. Forward contracts are the most commonly used type of hedge, and they involve an agreement between two parties to buy or sell a specified amount of a currency at a predetermined price on a future date. Options and futures contracts are also popular hedging tools, but they are more complex than forward contracts and may not be suitable for all investors.