STRATEGIC USE OF CURRENCY DERIVATIVES FOR FOREIGN EXCHANGE RISK MANAGEMENT

Abstract

In the context of increasing globalization, firms and financial institutions are exposed to significant foreign exchange (forex) risks, which can adversely affect profitability and financial stability. Currency derivatives, including forwards, futures, options, and swaps, have emerged as vital tools for managing these risks effectively. This study examines the role and impact of currency derivatives in mitigating forex volatility while analyzing the influence of regulatory frameworks on their usage. By reviewing empirical evidence and regulatory guidelines, the study highlights how strategic adoption of currency derivatives can hedge currency exposure, optimize risk-adjusted returns, and enhance financial resilience. The findings underscore that while currency derivatives provide substantial risk management benefits, compliance with regulatory frameworks is critical to ensure transparency, mitigate systemic risk, and maintain market stability