Definition
FX strategy manages risk arising from currency fluctuations through natural hedges, financial derivatives, and pricing structures.

Introduction
Global revenues and costs in different currencies can swing profits dramatically. Proactive hedging protects margins and planning.

Explanation

Types of exposure:
 • Transaction (short-term contracts denominated in foreign currency)
 • Translation (reported financials of subsidiaries)
 • Economic (long-term competitiveness impact).

Natural hedges: match revenues and costs in same currency (e.g., local production).

Financial hedges: forwards, options, swaps to lock future rates.

Pricing clauses: currency adjustment mechanisms in contracts.

Governance: central treasury policy and VaR ( Value at Risk ) limits.

Key Takeaways

Hedge predictable flows; leave unpredictable upside partially open.

Integrate treasury policy with commercial teams.

Transparency in hedge accounting builds investor trust.

Real-World Case
Coca-Cola matches revenue and cost currency by manufacturing locally, reducing transaction risk in volatile markets.