Hedging

A strategy designed to reduce investment risk using call options, put options, short-selling, or futures contracts. A hedge can help lock in profits. Its purpose is to reduce the volatility of a portfolio by reducing the risk of loss.

Hedge

To reduce the risk of an investment by making an offsetting investment. There are a large number of hedging strategies that one can use. To give an example, one may take a long position on a security and then sell short the same or a similar security. This means that one will profit (or at least avoid a loss) no matter which direction the security's price takes. Hedging may reduce risk, but it is important to note that it also reduces profit potential.

Hedging.

Hedging is an investment technique designed to offset a potential loss on one investment by purchasing a second investment that you expect to perform in the opposite way.

For example, you might sell short one stock, expecting its price to drop. At the same time, you might buy a call option on the same stock as insurance against a large increase in value.

hedging

the act of reducing uncertainty about future (unknown) price movements in a COMMODITY (rubber, tea, etc.), FINANCIAL SECURITY (share, stock etc.) and FOREIGN CURRENCY. This can be done by undertaking forward sales or purchases of the commodity, security or currency in the FORWARD MARKET; or by taking out an OPTION which limits the option holder's exposure to price fluctuations. See EXCHANGE RATE EXPOSURE. HEDGE FUND.

hedging

the act of reducing uncertainty about future (unknown) price movements in a COMMODITY (rubber, tea, etc.), FINANCIAL SECURITY (share, stock, etc.) or FOREIGN CURRENCY. This can be done by undertaking forward sales or purchases of the commodity, security or currency in the FUTURES MARKET, or by taking out an OPTION that limits the option-holder's

exposure to price fluctuations. See EXCHANGE RATE EXPOSURE.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

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References in periodicals archive

Most hedging entities that exclude forward points and option time values from hedge effectiveness assessments will likely embrace this change.

Update on Hedge Accounting Rules: FASB Addresses Effectiveness Concerns

In conclusion, we believe this topic of hedging costs and hedged yields will likely rise in importance over the next 12 months; but right now, it's something investors should have on their radar rather than providing a rationale for specific portfolio action.

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NET PRESENT VALUE AS A TOOL TO EVALUATE HEDGING DECISIONS

Does hedging reduce risk? Analysis of large domestic airlines

Chatham Financial is a financial risk management advisory services and technology solutions firm, serving clients in the areas of interest rate, foreign currency and commodity hedging, hedge accounting, regulatory compliance, and debt and derivatives valuations.

-Chatham Financial study looks at financial risk management

* The item or risk being hedged within 35 days after entering into the hedging transaction (Regs.

The importance of proper and timely hedge identification

Conifer hedges, including the notoriously fast-growing leylandii, which grows impossibly tall if left unchecked, are nevertheless excellent hedging plants if they are regularly trimmed.

Reach new hedge heights; gardening

Large-leafed hedging plants are best for filtering out noise and dust, while at the same time they provide food and shelter for wildlife.

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In this paper we use UK data to present empirical evidence on the valuation and debt capacity effects of foreign currency (FC) and interest rate (IR) hedging. We build on recent studies that have presented mixed results on the link between hedging, leverage and firm value.

The value effects of foreign currency and interest rate hedging: the UK evidence