Exchange Rate Hedging

Foreign Currency is a “goods”!

Receiving foreign currency in the future means you are longing the goods (you think it will appreciate). To hedge, you want to sell forward contract to give away the goods.

Selling a contract means committing to deliver the goods!

Similarly, paying foreign currency in the future means you are shorting the goods. To hedge, you have to buy forward contracts so that you can buy the goods in the future with a fixed price.