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To mitigate FX risks, companies need to have a clear understanding of their exposure and develop an appropriate strategy for managing it effectively. Strategies could include hedging through options or futures contracts; using derivatives such as forward contracts, swaps and options; diversifying across currencies; entering into currency-swap agreements with counterparties; or utilising netting systems where applicable.
Other methods of mitigating FX risk may include limiting investments/payments denominated in foreign currencies, maintaining adequate liquidity levels at all times and monitoring market volatility closely. Additionally, companies should maximise internal controls over treasury management functions to further reduce potential exposures associated with FX movements.