To reduce and possibly eliminate foreign exchange exposure/risks, the finance manager should do the following:
• Enter in forward contracts
• Enter into currency futures contracts
• Buy a call currency option when importing and a put current option when exporting.
• Use a money market hedge borrowing and lending depending on when the firm is expecting receivables or make payments.
• Where possible, use swap agreements (currency swaps) especially where foreign currency is needed to finance foreign operations.
• Leading (upfront payments/receiving) and lagging (delaying payment or receipt to future date)
• Matching the receipts and payments
• Netting – off especially where a multi-national firm has a number of subsidiaries overseas which owe each other some money.
• Holding a currency “cocktail” i.e a portfolio of currencies where a loss on one currency is offset a gain on another currency.