To manage currency exposure risk, businesses can adopt a plan which uses different products to mitigate against cost increases or declining revenues from exchange rate moves.
The plan should fit the business goals and take into account the costing rate. A good plan will look to balance exposure risk with opportunity cost by taking action on a frequent basis rather than trying to guess the right moment. It is important to hedge the right amount for right length of time to suit the business.
The most frequently used and cost effective product is the forward contract which provides full certainty of the rate but also full obligation.
Businesses that deal in large amount of currency and have good gross profit margins should also consider option contracts to provide a better balance of outcomes over the long term.