Techniques for hedging foreign exchange risk exposure
If foreign exchanges market are efficient such that purchasing power parity , interest rate parity , and the international Fisher effect hold true, a firm or investor needn't protect against foreign exchange risk due to an indifference toward international investment decisions. Turn off more accessible mode Kaplan Wiki. Equity markets in Canada, the largest trading partner of the U. In a forex swap, the parties agree to swap equivalent amounts of currency for a period and then re-swap them at the end of the period at an agreed swap rate. The right to buy is a call ; the right to sell, a put. A period of time in which all factors of production and costs are variable. Options provide the only convenient means of hedging or positioning "volatility risk.