Hedging

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Description of Hedging. Explanation.

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Definition Hedging. Description.


Hedging is the process of protecting a company against unwanted risk. For example, a firm who owes money to an overseas corporation may want to hedge against the risk that the exchange rate moves against them. They could do this by taking out a future contract for foreign exchange. In other words they agree to buy now at a fixed price in the future.


Some form of risk taking is inherent to any business activity (if there were no risk, it is likely there would be no reward). Some forms of risk are "natural" to a business, whose competitive advantage is to manage the risk well, i.e. to minimize the costs of the risk, against the profit it is likely to achieve. Other forms of risk are not wanted, but cannot, as things stand, be avoided. Hedging consists of selling off the unwanted risk to those who have the ability or desire to take it. Typical examples of risks that are often hedged are: insurance risks, credit risks and foreign exchange risks.


Hedging Forum
  Types and Applications of Derivative Products
The emergence of the market for derivative products, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset price...
     
 

Hedging Special Interest Group


Special Interest Group

 

Best Practices - Hedging Premium

Expert Tips - Hedging Premium

Resources - Hedging Premium

Overview of Hedge Fund Investment Strategies

Presentation about Hedging, introducing many terms and strategies:
1. Hedge Funds Investment Strategies
2. Four Groups of Hedge Funds Invest...
Usage (application): Hedge Funds, Hedging, Investment Strategies
 

Financial Derivatives: an Overview

This presentation provides an overview of different types of financial derivatives and about Hedge Funds. The presentation includes the following sect...
Usage (application): Hedge Funds, Financial Derivatives, Investment Strategy
 

Introduction and Summary of Interest Rate Swap

Explanation of Base Rate Swaps.
A swap is an instrument that allows you to exchange a variable rate of a loan (that is linked to the base rate) f...
Usage (application): Initial Understanding of Interest Rate Swap
 

Introduction and Summary of Hedging

Explaination of hedging using futures contracts within the context of the London Metal Exchange (LME), thus avoiding liquidity risk....
Usage (application): Initial Understanding of Hedging, Trainings, Workshops
 

Introduction and Summary of Futures and Stop Loss Contracts

A derivative is a financial contract which derives its value from the performance of another entity such as an asset, index, or interest rate, called ...
Usage (application): Initial understanding of Futures and Stop Loss Contracts
 
 

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Compare also: Strategic Risk Management  |  Portfolio Insurance  |  Hedge  |  Non-Systemic Risk  |  Systemic Risk  |  Short Selling

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