
224 INTERNATIONAL FINANCIAL MANAGEMENT
Summary
1. A firm has exposure to currency risk when its income
flows and/or capital flows are affected by unanticipated
changes in exchange rates.
2. The prominent hedging devices available to a firm to
insulate itself from exposure to currency risk are cur-
rency forwards, currency futures, and currency options.
3. A currency forward contract is a legally enforceable agreement
in which two parties agree to buy and sell in the future, a
specified amount of one currency for another currency,
at a fixed exchange rate.
4. A currency futures contract is a standardized agreement to
deliver or receive ...