Analysis of Hedging Transaction Exposure Using Financial Contracts in International Financial Market

Since 2008, the sub-prime crisis, which lasted for more than one year has evolved into a global financial crisis, more and more people pay attention to the financial risk management. As one of the foreign exchange risk, or exposure, distinguishing with the economic exposure and translation exposure, the transaction exposure often happens during the course of international trade and international capital flow, but the existence of this risk must meet two conditions in the financial contract agreed by two parities: time and foreign currency. Faced with the transaction exposure, we are apt to adopt the financial hedge approaches to eliminate the uncertainty caused by exchange rate change. This paper focuses on introducing one study case and analyses the financial market technique. By compared three hedge approaches: forward hedge, money hedge and option hedge, we can draw a conclusion: in reality, every hedge method has itself advantages and disadvantages.