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The easiest way to think about a currency hedge is like a form of insurance. It is an instrument that helps protect against financial loss arising from movements in exchange rates. It is an agreement to buy or sell currency at a predetermined exchange rate at a specific date in the future.

Central banks and governments can intervene to help stabilize a currency by selling off reserves of foreign currency or gold, or by intervening in the forex markets. Currency crises have occurred throughout modern history, most notably in Asia and Latin America during the 1990s.

Forward contracts can be used for hedging purposes and enable an investor to lock in a specific currency's exchange rate. Typically, these contracts require a deposit amount with the currency broker.

Forward Exchange Contracts allow you to lock in an exchange rate for a specific amount for a future date. Most banks offer these contracts to businesses but they are not always available to individuals.

It is a legal currency contract that allows you to buy currency at an agreed exchange rate at a future date. Typically, you pay a deposit of 10% now and agree to pay the remainder when the balance is due.

To hedge on currency, a company makes a ?forward agreement? with an investment dealer to sell a specific amount of a particular currency on a future date?but at today's exchange rate. This forward agreement is carried out through an exchange traded fund (a type of investment).

Simply explained, in order to weaken its currency, a country sells its own currency and buys foreign currency ? usually U.S. dollars. Following the laws of supply and demand, the result is that the manipulating country reduces the demand for its own currency while increasing the demand for foreign currencies.