There are three main types of forex risks:

• Transaction risk is the risk that the value of a currency will change between the time a transaction is agreed upon and the time it is settled. This can lead to losses if the currency has depreciated in value. For example, a company that imports goods from Japan may agree to pay a certain amount of yen for the goods. However, if the value of the yen falls between the time the agreement is made and the time the goods are paid for, the company will have to pay more yen than it originally planned.
• Translation risk is the risk that the value of a company's assets and liabilities denominated in foreign currencies will change due to changes in exchange rates. This can lead to losses if the value of the currency has depreciated in value. For example, a company that has a subsidiary in Japan may have assets and liabilities denominated in yen. If the value of the yen falls/slips, the company's assets and liabilities will be worth less in the company's reporting currency.
• Economic risk is the risk that changes in exchange rates will have a negative impact on a company's business. This can happen if changes in exchange rates make it more expensive for the company to import or export goods, or if they make it more difficult for the company to compete with foreign companies. For example, if the value of the dollar falls, it will become more expensive for American companies to import goods from China. This could lead to higher prices for American consumers, which could hurt the sales of American companies.

Companies can use a variety of hedging techniques to manage forex risk. Hedging is the process of taking steps to reduce the risk of losses due to changes in exchange rates. Some common hedging techniques include:

• Forward contracts hedgings are agreements to buy or sell a particular currency at a predetermined price on a future date.
• Options provides the holder the right, but not the responsibility, to buy or sell a currency at a predetermined pricing on a future date.
• Swaps are agreements to exchange one currency for another at a predetermined exchange rate on a future date.

The choice of hedging technique depends on the specific needs of the company. For example, a company that is concerned about transaction risk may use forward contracts to lock in the exchange rate for a future transaction. A company that is concerned about translation risk may use options to protect itself against losses if the value of the currency falls. And a company that is concerned about economic risk may use a combination of hedging techniques to reduce its exposure to currency fluctuations.