In this session, I explain accounting for currency hedging using forward contract. Currency hedging is a strategy designed to mitigate the impact of currency or foreign exchange (FX) risk on international investments returns. Popular methods for hedging currency are forward contracts, spot contracts, and foreign currency options. In very simple terms, Currency Hedging is the act of entering into a financial contract in order to protect against unexpected, expected or anticipated changes in currency exchange rates.

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Describe a forward exchange contract. A forward exchange contract is an agreement to exchange currencies of two different countries at a specified rate (the forward rate) on a stipulated future date. At the inception of the contract, the forward rate is usually different from the spot rate.
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