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In the three risks relating to foreign exchange can you explain how we could hedge against each. Also can you share a clear definition for hedging. Thanks
The only risk that we are really interested in hedging is transaction risk.
Strictly hedging is protecting against movements in the exchange rate by dealing in another investment that will give a compensating profit for any loss on the transaction. Using futures is the only example of hedging against transaction risk for F9 (and you cannot be asked calculations on them at F9 – you can only be asked to describe them).
There is a lecture on here explaining how futures work.
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