<P> A foreign exchange hedge (also called a FOREX hedge) is a method used by companies to eliminate or "hedge" their foreign exchange risk resulting from transactions in foreign currencies (see foreign exchange derivative). This is done using either the cash flow hedge or the fair value method . The accounting rules for this are addressed by both the International Financial Reporting Standards (IFRS) and by the US Generally Accepted Accounting Principles (US GAAP) as well as other national accounting standards . </P> <P> A foreign exchange hedge transfers the foreign exchange risk from the trading or investing company to a business that carries the risk, such as a bank . There is cost to the company for setting up a hedge . By setting up a hedge, the company also forgoes any profit if the movement in the exchange rate would be favourable to it . </P>

An option market hedge in foreign exchange risk management is a form of an