Hedging: Difference between revisions
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Traditionally hedging refers to the process whereby a firm uses financial instruments (such as forward contracts, futures contracts or options) or other techniques to reduce the impact of fluctuations in such factors as the market price of credit, foreign exchange rates, or commodity prices on its profits or corporate value. | Traditionally hedging refers to the process whereby a firm uses financial instruments (such as forward contracts, futures contracts or options) or other techniques to reduce the impact of fluctuations in such factors as the market price of credit, foreign exchange rates, or commodity prices on its profits or corporate value. | ||
Other techniques may operational or structural responses, for example re-locating manufacturing or assembly. | Other techniques may operational or structural responses, for example re-locating manufacturing or assembly to align the currencies of costs with revenues. | ||
Following such successful structuring, the organisation may then be said to be 'naturally' hedged. | |||
2. | 2. | ||
The application of hedging techniques has been extended to the management of many other risks including for example inflation and longevity risk arising in pension funds. | The application of hedging techniques has been extended to the management of many other risks including, for example, inflation and longevity risk arising in pension funds. | ||
Revision as of 10:08, 24 August 2016
1.
Traditionally hedging refers to the process whereby a firm uses financial instruments (such as forward contracts, futures contracts or options) or other techniques to reduce the impact of fluctuations in such factors as the market price of credit, foreign exchange rates, or commodity prices on its profits or corporate value.
Other techniques may operational or structural responses, for example re-locating manufacturing or assembly to align the currencies of costs with revenues.
Following such successful structuring, the organisation may then be said to be 'naturally' hedged.
2.
The application of hedging techniques has been extended to the management of many other risks including, for example, inflation and longevity risk arising in pension funds.
See also
- Arbitrage
- Authorisation
- Authority limits
- Basis risk
- Buy-side firm
- CertFMM
- Covering
- Dealer
- Delta hedging
- Effective
- Foreign exchange forward contract
- Futures
- Guide to risk management
- Hedge accounting
- Hedge fund
- Inflation risk
- Interest rate guarantee
- Longevity
- Macro hedging
- MCT
- Option
- Outturn
- Overhedging
- Pre-settlement risk
- Reduce
- Risk response
- Sell-side firm
- Speculation
- Structural
- Transfer
- Uncovered
- Underhedging
- Warehousing
