FBL Inc., a US-based company, has to make payment to its supplier in Japan in March. FBL approached its bank in January and agreed on an exchange rate at which it will make the payment. FBL thus creates a safety net against any potential loss, if any fluctuation in exchange rate arises in the future. What is this strategy adopted by companies dealing in foreign exchange known as?

Foreign exchange risk management strategy

Explanation:

In simple terms, what the Foreign exchange risk management strategy entails is the measures used by companies to protect or to create a safety net against any potential losses that may arise due to fluctuation in the exchange rates.

By approaching its bank in January [about three months in advance] in other to agree on an exchange rate at which they will make a payment, FBL Inc was implementing its Foreign exchange risk management strategy.