Question

Why can foreign exchange hedges be used by firms that don't want to be affected by changes in foreign financial markets?

Answer 1

Any firm selling goods whose price depends on some foreign exchange rate is exposed to its fluctuations. To limit the amplitude of these fluctuations is to hedge.

Explanation:

To do this the firm might buy (long position) or sell (short position) a futures contract tied to that exchange rate. Why futures because they are more liquid,