Which strategies can businesses use to manage currency risk?

Businesses can manage currency risk effectively through strategies such as hedging, using forward contracts, and diversifying their operations. Hedging involves financial instruments or market strategies that protect against unwanted fluctuations in exchange rates. For instance, a company can engage in a forward contract, which allows it to lock in a set exchange rate for a future date, providing certainty regarding costs and revenues associated with foreign transactions.

Moreover, diversifying operations can mitigate risk by spreading exposure across different currencies and markets. By not relying heavily on a single foreign market or currency, a business can decrease the overall impact of currency fluctuations on its financial performance. This multifaceted approach is crucial for businesses involved in international trade or investment, as it helps stabilize their financial outcomes amidst the unpredictable nature of global currency movements.

The other strategies listed either do not effectively address currency risk or limit potential growth and flexibility in international markets, making them less advantageous for managing such risks comprehensively.