What does the word hedging mean? Why do companies hedge foreign exchange risk?
What does the word hedging mean? Why do companies hedge foreign exchange risk?
What does the word hedging mean? Why do companies hedge foreign exchange risk?
Answer :
The term hedging means safeguarding or say minimizing the risk that occurs in a business
In respect of the foreign exchange , the foreign exchange rate between two countries keeps on changing and there is a risk that the the business might suffer a huge amount of loss due to the fluctuation of the foreign exchange . To minimize this risk we can hedge our foreign exchange risk .
The business has to hedge their foreign exchange risk so as to minimize the risk of loss that will occur from fluctuating the foreign currency . The means of hedging are money market hedge, entering into forward contract ,using currency future and options .
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