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what is the meaning of hedging?
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Answer / prasanna11149@yahoo.co.in
In finance, a hedge is an investment that is taken out
specifically to reduce or cancel out the risk in another
investment. Hedging is a strategy designed to minimize
exposure to an unwanted business risk, while still allowing
the business to profit from an investment activity.
Typically, a hedger might invest in a security that he
believes is under-priced relative to its "fair value" (for
example a mortgage loan that he is then making), and
combine this with a short sale of a related security or
securities. Thus the hedger is indifferent to the movements
of the market as a whole, and is interested only in the
performance of the 'under-priced' security relative to the
hedge.
2).Process of protecting oneself against unfavorable
changes in prices. Thus one may enter into an offsetting
purchase or sale agreement for the express purpose of
balancing out any unfavorable changes in an already
consummated agreement due to price fluctuations. Hedge
transactions are commonly used to protect positions in (1)
foreign currency, (2) commodities, and (3) securities.
| Is This Answer Correct ? | 28 Yes | 4 No |
Answer / naresh_l
It is an act, in which an investor seeks to protect a
position or anticipated position in spot market by using an
apposite in derivities.
| Is This Answer Correct ? | 38 Yes | 16 No |
Answer / prasanna11149@yahoo.co.in
In finance, a hedge is an investment that is taken out
specifically to reduce or cancel out the risk in another
investment. Hedging is a strategy designed to minimize
exposure to an unwanted business risk, while still allowing
the business to profit from an investment activity.
Typically, a hedger might invest in a security that he
believes is under-priced relative to its "fair value" (for
example a mortgage loan that he is then making), and
combine this with a short sale of a related security or
securities. Thus the hedger is indifferent to the movements
of the market as a whole, and is interested only in the
performance of the 'under-priced' security relative to the
hedge.
2).Process of protecting oneself against unfavorable
changes in prices. Thus one may enter into an offsetting
purchase or sale agreement for the express purpose of
balancing out any unfavorable changes in an already
consummated agreement due to price fluctuations. Hedge
transactions are commonly used to protect positions in (1)
foreign currency, (2) commodities, and (3) securities.
| Is This Answer Correct ? | 15 Yes | 4 No |
Answer / vikesh bansal
it is a risk reducing investment strategy involving
transactions of a simultaneous but opposing nature so that
effect of one is likely to counterbalance the effect of
other. With reference to appropriate financin mix,the term
hedging can be sid to reffer to process of matching
maturities of debt with maturities of financial needs. This
approach to the financing decision to determine an
appropriate financing mix is, therefore, also called as
matching approach.
acording to tjis approach, the maturity of the sources of
funds should match the nature of the assets to be
financed.for the purpose of the analysis, the current
assets can be classified into two broad classes:-
1) those which are required in a certain amount for a given
level of operation and, hence, do not vary over time.
2) those which fluctuate over time.
the hedgindg approach suggests that long term hands should
be used to finance the fixed portion of the current assets
requirements as spelt out in (1) above, in a manner similar
to the financing of fixed assets. the purely temprarily
requirements, that is, tyhe seasonal variations over above
the permanent financing needs should be appropriately
finanaced with short term funds(current liabilities). This
approach, therefore, divies the requirements of the total
funds into permanent and seasonal components, each bein
financed by different source.
| Is This Answer Correct ? | 8 Yes | 1 No |
Answer / hamsavaniv
A transaction that reduces the risk of an investment.
| Is This Answer Correct ? | 8 Yes | 1 No |
Answer / pancham
Hedging means "Moving from risky assets to riskless assets"
in this it minimises the risk.
| Is This Answer Correct ? | 6 Yes | 2 No |
Answer / sanjog bajaj
HEDGING IS A TOOL TO MINIMIZE THE RISK....
| Is This Answer Correct ? | 4 Yes | 0 No |
Answer / asif shahzad
Assets are financed against the source of financing having
the same maturity.
A method of financing where assets would be offset with a
financing instrument of the same approximate maturity.
| Is This Answer Correct ? | 4 Yes | 2 No |
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