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Companies that have exposure to foreign markets can often hedge their risk with currency swap forward contracts. Many funds and ETFs also hedge currency risk using forward contracts. A currency forward contract, or currency forward, allows the purchaser to lock in the price they pay for a currency.

Use hedging instruments Hedging instruments are contracts or agreements that allow you to lock in a certain exchange rate for a future transaction or period. For example, you can use a forward contract, a futures contract, an option, or a swap to hedge your currency risk.

Hedging strategies can protect a foreign investment from currency risk for when the funds are converted back into the investor's home currency. Currency ETFs can be used to mitigate a portfolio's exposure to the performance of a currency exchange rate.

A company can avoid forex exposure by only operating in its domestic market and transacting in local currency. Otherwise, it must attempt to match foreign currency receipts with outflows (a natural hedge), build protection into commercial contracts, or take out a financial instrument such as a forward contract.

One tactic companies use to work around currency controls, and to hedge currency exposures, is to use what are known as forward contracts. With these arrangements, the hedger arranges to buy or sell a given amount of an un-tradable currency on a given forward date, at an agreed rate against a major currency.

One of the simplest ways to avoid the risks associated with fluctuations in exchange rates is to quote prices and require payment in U.S. dollars. Then both the burden of exchanging currencies and the risk are placed on the buyer.

Locked-In Rates: With Locked-In exchange rates, the value of a nation's currency is fixed against the value of another single currency. The government or the central bank sets this exchange rate in order to maintain the official currency value within a narrow band and keep interest rates down.