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A currency hedge position is traded into to protect capital in the event of a currency depreciation. Thus, the objective is to short the currency in which the assets is denominated to protect from downside risk.
A currency hedge can be obtained through the use of derivative instruments.
One can short a currency future or buy a put option . This allows you to sell the currency at a predetermined price at expiry of the contract for the future
Other more complex strategies also exist for instance a short fence. This involves selling a out of the money Call option and using the premium to buy a out of the money Put option.
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