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Cross Hedging

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Cross hedging
Applies to derivative products. Hedging with a futures contract that is different from the underlying being hedged. Use of a hedging instrument different from the security being hedged. Hedging instruments are usually selected to have the highest price correlation to the underlying.

Cross Hedge
An investment strategy that involves taking a position on a commodity followed by an equal but opposite futures position on a different commodity with similar price movements. Because the price movements of the two commodities should be closely correlated, a negative movement on the present commodity should be offset by a positive movement on the opposite futures position, and vice versa. Cross hedging is often used in markets where there is no viable futures market for the presently-owned commodity. See also: Commercial trader.


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Using Treasury-note futures contracts to hedge the mortgage pipeline is known as cross hedging.
Cross hedging involves hedging an exposure, such as commercial paper, with an instrument whose underlying basis differs from the item being hedged, such as U.
 
 
 
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