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post in: Songs Date:10 Apr 2013, 10:06 views:520
A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. In simple language, a hedge is used to reduce any substantial losses or gains suffered by an individual or an organization. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles,1 many types of over-the-counter and derivative products, and futures contracts.
A stock trader believes that the stock price of Company A will rise over the next month, due to the company's new and efficient method of producing widgets. He wants to buy Company A shares to profit from their expected price increase, as he believes that shares are currently underpriced.
But Company A is part of a highly volatile widget industry. So there is a risk of a future event that affects stock prices across the whole industry, including the stock of Company A along with all other companies. Since the trader is interested in the specific company, rather than the entire industry, he wants to hedge out the industry-related risk by short selling an equal value of shares from Company A's direct, yet weaker competitor, Company.
As an emotion regulation strategy, people can bet against a desired outcome. A New England Patriots fan, for example, could bet their opponents to win to reduce the negative emotions felt if the team loses a game.
People typically do not bet against desired outcomes lopez that are important to their identity, due to negative signal about their identity that making such a gamble entails.
Betting against your team or political candidate, for example, may signal to you that you are not as committed to them as you thought you were.1.
Debt - borrowing in the currency to which the firm is exposed or investing in interest-bearing assets to offset a foreign currency payment - is a widely used hedging tool that serves much the same purpose as forward contracts. A German company has shipped equipment to a company in Calgary, Canada.
The exporter's treasurer has sold Canadian dollars forward to protect against a fall in the Canadian currency. Alternatively she could have used the borrowing market to achieve the same objective. She would borrow Canadian dollars, which she would then change into Euros in the spot market, and hold them in a Euro deposit for two months.