Circumventing Foreign Currency Risk

Foreign currency exchange (FX) rates express the relational value between any two currencies at any point in time. The value of one currency over the other is determined by simple supply and demand. Fluctuations, and appreciation or devaluation of currencies effect trade globally. When it comes to government, Purchasing Power Parity (PPP), and Balance of Payments (BOP) are two methods of evaluating the effects of FX deviations; in the case of foreign companies, domestic companies with foreign interests, and investors of the same, there are mechanisms available to effectively circumventing FX rate risks. Monitoring FX rate changes and relationships daily, and responding accordingly, is paramount in ensuring the well-being of countries, the profitability of companies, and positive yields for investors of foreign companies.
FX rates represent the price of one currency denominated in units of another currency. While it is meaningless to talk of the price of one currency against its...