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Fx options have exposure to the interest rates in the domestic and foreign currency. This risk can be hedged using currency forwards. In an ideal world, I suppose the best way would be to hold forwards with exactly the same expiry as the options in your book and then delta hedge with them. However, this may not be practical for large options books like for a market maker or a vol arb fund as this would involve adapting your positions in dozens of options every day. How do people in practice deal with this problem? To effectively hedge the rates exposure, one would need to keep exposure to level of rates but also to the term structure limited. Then when you open a new options position you would have to decide whether to exchange delta by spot or same maturity forward and you would somehow have to manage all your rates exposures across the curve as the options deltas change .

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