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Hedging against fluctuating exchange rates

Since the advent of the age of fluctuating currency exchange rates following the Smithsonian Agreement, the risks of market determined fluctuations and the oil shock of 1973 incited interest in the corporate world to devise methods to hedge against the new risks that were introduced with these changes.In financial derivatives they saw the means to mitigate these risks. Currency fluctuations have an impact on a company's balance sheet in a way that it affects the company's cash flows and it can have an impact on its share prices. A company therefore, cannot rely on luck to save it from market's uncertainties.

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