FMIs play an important role in financial markets, and any liquidity support offered by central banks should be to mitigate shocks emanating from the real economy, not from gambling in risky assets. Regulating banks Finally, we need to look at the banking sector.
But, long-term hedging is expensive, and therefore, most currency futures contracts are short-term. Once hedges expire, export revenues are no longer protected from past and future changes in exchange rates, and any new hedges must reflect the new exchange rates. Thus, successful currency hedges can at best delay but cannot prevent the ultimate effects of changes in exchange rates on trade.