FOREIGN EXCHANGE RATE RISK AND HEDGING INSTRUMENTS IN INTERNATIONAL TRADE

Abstract

Aim: The aim of this article is to examine the exchange rate risk in international trade and the methods of hedging this risk in detail. Currency risk is when companies are faced with uncertainties arising from fluctuations in exchange rates, which can severely affect companies' operations, profitability and cash flow. The article aims to contribute to the development of effective strategies for companies against exchange rate risk. Method: This article is based on a basic and applied literature review on exchange rate risk and hedging instruments. Academic resources, research articles, and current financial literature have been used to compile information and data on exchange rate risk management. The advantages and disadvantages of prevention tools are discussed based on the analysis of the studies in the literature. Results: The results presented in the article confirm that exchange rate risk is an important risk factor for companies doing business in international trade. Currency fluctuations can affect the profitability of companies, adversely affect their cash flows and threaten their financial stability. However, when correct and effective hedging strategies are used, companies can manage this risk and minimize its negative effects and become more financially secure. Conclusion: The article highlights the importance for companies of managing exchange rate risk in international trade. Derivative products, which are hedging instruments that companies can use against exchange rate risk, have an important role in risk management. By properly assessing exchange rate risk and implementing appropriate hedging strategies, companies can create a more stable international trading environment and achieve long-term success.