Hedging Effectiveness

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Hedging Effectiveness

The extent to which hedging an investment actually reduces risk. There are a large number of hedging strategies one can use. For example, one may take a long position on a security and then sell short the same security. However, some strategies may be forms of naive diversification, which reduce hedging effectiveness. In an extreme example, if one buys a stock and then short sells a bond in a completely different industry, one is more likely to increase risk rather than decrease it.
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In order to manage our investment portfolio optimally and prevent wealth erosion by these potential risks we must employ effective hedging strategies.
It evidences that the use of foreign currency derivatives is an effective hedging tool for managing foreign exchange exposure.
An effective hedging policy should set goal posts rather than precisely dictate hedging practice.
Koushik Chatterjee, Tata's group executive director, said: "In Europe, the positive impact of the structural restructuring undertaken in the UK in the last six months along with a weaker pound, cost-reduction measures and an effective hedging strategy on raw material imports have enabled the business to report better performance for the quarter.
Koushik Chatterjee, Tata's group executive director, said: "In Europe, the positive impact of the structural restructuring undertaken in the UK in the last six months along with a weaker pound, cost reduction measures and an effective hedging strategy on raw material imports have enabled the business to report better performance for the quarter.
Portfolio managers will use derivatives to provide cost effective hedging strategies to protect and situate the fund to benefit from short-term market shifts and volatility.
The project freed up about 600 hours per year of treasury staff time and resulted in more effective hedging. "Within an hour after we close the books we have exposures that we trust," Dasari says.
"While in the Americas, WTI crude remains the benchmark for pricing, a number of US based hedgers use Brent due to its global fundamental relevance, and also since it is internationally arbitraged to US refined oil product exports and oil imports," Jodie Gunzberg, global head of commodities at S&P Dow Jones Indices, said in a blog."Since US refined product exports and oil imports are not constrained by pipeline infrastructure, or restrictions on exporting US crude, Brent futures are used as effective hedging tools," Gunzberg said.
Therefore increased participation in global trade by African firms requires suitable forex risk management and effective hedging tools.
Gaurang Desai, chief operating officer of the DCCC, said: "The successful completion of the first physical delivery demonstrates the close convergence between the DGCX plastics futures market and the larger physical market, which allows the contract to be used as an effective hedging tool by a wide range of market participants.
Jet fuel makes up at least 30 percent of most airlines' overall operating costs and an effective hedging strategy is crucial as heightened competition forces carriers to cut fares and operate on thin margins.
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