To protect against loss as a result of adverse currency fluctuations, an export firm may:

Question

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Using a futures contract as a hedge is a common and effective way for export firms to protect themselves against currency fluctuations. This allows them to fix the exchange rate at which they will sell their products, reducing uncertainty and minimizing risk. The other options (such as demanding cash settlement or requiring payment in their own currency) may not be feasible or practical in all situations. A government guarantee against currency loss of value is also unlikely to be available in most cases.

To Protect Against Loss as a Result of Adverse Currency