1. Diversification: Currency risk can be mitigated by spreading
investments across multiple currencies, reducing exposure to
fluctuations in a single currency.
2. Options Trading: Using options contracts can provide a hedge
against currency risk, allowing traders to lock in exchange rates for
future transactions.
3. Forward Contracts: Utilizing forward contracts enables traders to
establish a fixed exchange rate for a future date, shielding them from
adverse currency movements.
4. Hedging with Cross Currency Pairs: Trading in cross currency pairs
allows investors to offset currency risk by pairing a currency they
are holding with another that moves inversely.
5. Use of Currency ETFs: Exchange-traded funds (ETFs) focused on
specific currencies can help traders hedge against currency risk by
providing exposure to a basket of currencies.
