hedging


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Related to hedging: hedging bets, Currency Hedging

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.

References in periodicals archive ?
Generally, a hedging transaction is a transaction that a taxpayer enters into in the ordinary course of-its trade or business to manage certain risks of ordinary property, borrowings or ordinary obligations; see Keg, s.
Consistent with these suggestions, the proposed hedging regulations provide a general rule that, for purposes of section 1221 of the Internal Revenue Code, the risk of one member of a consolidated group is to be treated as a risk of the other members of the group as if all the members of the group were members of a single corporation.
In TEI's comments on the temporary and proposed regulations for hedging transactions, the Institute summarized the history of the development of the tax law affecting hedging.
138, Accounting for Certain Derivative Instruments and Certain Hedging Activities--an Amendment of FASB Statement no.
TEI commends the Treasury and IRS for responding to the need for guidance on the income tax treatment of business hedging transactions.
The guidance in this SAS applies to hedging activities in which the entity designates a derivative or a nonderivative financial instrument as a hedge of exposure for which FASB Statement No.
Whether hedging transactions qualify for ordinary income or loss treatment depends on whether the hedging instrument is a capital asset.
While certain hedging strategies and the mathematical analyses supporting them can quickly become exceedingly complex, the exposures that create accounting difficulties and the strategies you can use to correct them fall into only a few broad, recognizable categories.
In addition, the FASB amendment expanded the normal purchases and normal sales exception, redefined the specific risks that can be hedged and allowed the use of intercompany derivatives as hedging instruments in certain situations.
485 US 212 (1988), which created the possibility that losses from hedging activities could result in capital loss treatment, while ordinary income was recognized on the property being hedged.
The table on page 42 lists some key accounting pronouncements on hedging and derivative financial instruments.
Major capabilities of the HIP include Portfolio Management, for tracking and evaluating investments in underlying funds; Shadow Accounting for monitoring, reconciling and forecasting portfolio cash, payables/receivables, and FX balances; Liquidity, for determining how much cash is redeemable from hedge funds over time; and FX Hedging, calculating exposure, hedging needs and determining gains/losses on existing hedges.