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This paper analyzes the processes of deriving the Garman-Kohlhagen model for pricing the European currency call option contract through the SRB model and derives the currency option-used hedging strategies for the exchange rate risk management through identifying the hedging rules together with the relevant Greek-letter risk measures, the calculating methods of optimum hedge ratio, and the necessary conditions of the better relative effectiveness of option-using hedging.
It is generally perceived that the currency futures is almost always a better hedging instrument than the currency options. But the simple protective put option hedging leads to the better performance than the shorting currency futures contract and the other hedging instrument in the special condition. In addition, many firms in the advanced countries such as USA and Germany frequently used the OTC currency option contracts to hedge the foreign exchange rate risk.
The hedging strategies of managing the exchange rate risk shoud be, therefore, established with the currency option contracts in the case of the increasing interest rate and the large volatility of underlying asset price. As well, the hedging strategies with the long put or the short call will be necessary when the nonlinearity between spot rate and futures price strongly exists.

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