What is financial risk? How can firms hedge?

What will be an ideal response?

Financial risks arise when currency fluctuations significantly affect the value of a firm's international investments. In addition, different rates of inflation across countries can require different approaches to managing them. Collectively, these are referred to as financial risks. Firms can hedge most of these risks through the use of a variety of financial instruments and strategies. The development of money markets, together with growing experience in operating in high-inflation economies, has substantially reduced the threat of these financial risks for firms pursuing international strategies.