Transaction Exposure associated with changes in the exchange rate between countries can be hedged with a currency futures contract.

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Currency futures contracts allow companies to lock in exchange rates at a certain time in the future, allowing them to hedge against the risk of currency fluctuations. This can be used to hedge transaction exposure, which arises from the uncertainty of the amount of foreign currency that will be received or paid in future transactions. By entering into a futures contract, a company can ensure that they will receive or pay a predetermined amount of foreign currency at a predetermined exchange rate, reducing the risk of losses due to currency fluctuations.

Transaction Exposure Associated with Changes in the Exchange Rate Between