(Difference between pages)
imported>Doug Williamson |
imported>Doug Williamson |
| Line 1: |
Line 1: |
| Overhedging is a form of speculation.
| | The currency in which financial statements are presented. |
|
| |
|
|
| |
|
| It means intentionally hedging an amount GREATER THAN the total related risk exposure, for example by the use of a derivative instrument with a principal amount of 200% of the related risk exposure.
| | ==See also== |
| | * [[Functional currency]] |
|
| |
|
| The effect of overhedging in this way is to create a new purely speculative position in the derivative instrument.
| | [[Category:Accounting,_tax_and_regulation]] |
| | |
| The size of the new speculative position is equal to the excess of the principal amount hedged, over 100%.
| |
| | |
| | |
| <span style="color:#4B0082">'''Example: Overhedging'''</span>
| |
| | |
| In the case above, the size of the new speculative position is 200% - 100% = 100%.
| |
| | |
| In other words equal in size to the original exposure being hedged.
| |
| | |
| The new speculative position is in the opposite direction to the original exposure.
| |
| | |
| | |
| == See also ==
| |
| * [[Hedging]]
| |
| * [[Underhedging]]
| |
| | |
| [[Category:Manage_risks]] | |
| [[Category:Risk_frameworks]]
| |
Latest revision as of 07:07, 2 July 2022
The currency in which financial statements are presented.
See also
